The Chefs' Warehouse Inc.

The negative outlook reflects the potential for a lower rating if Chefs' customer base does not recover as expected in the second half of 2020 and the company's profitability remains pressured, resulting in an unsustainable capital structure. We expect free cash flow will be negative in 2021 because of significant working capital investment but will turn positive in 2022. We could revise the outlook to stable if we have confidence that Chefs' will restore and sustain leverage below 7.5x while also maintaining adequate liquidity. This could occur if food away from home consumption continues to steadily improve and the company successfully manages input cost headwinds and challenging labor market conditions. We could lower the rating if we believe leverage will

...We expect strong sales growth and a return to profitability starting in the second quarter of 2021, but Chefs' Warehouse Inc. is unlikely to restore annual revenues to pre-pandemic levels until 2023. The COVID-19 pandemic had a disproportionate effect on Chefs'. The company has experienced a slower recovery than its larger broadline foodservice peers because of its concentration in metropolitan areas that have faced more restrictive lockdown measures. Further, it has a larger exposure to the hardest hit subsectors, including fine dining, hotels, and cruise lines. With many metropolitan areas expecting full reopenings by early summer, we forecast strong sales growth in the second half of 2021. At the same time, several factors will likely prevent the company from exceeding pre-pandemic volumes over the next year. These include a slower return to the office for workers in metropolitan areas, increased consumer proclivity toward cooking meals at home, and lingering consumer hesitancy and/or...

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