HF Foods Goes North: Sea Ray Deal Marks a Strategic Pivot

The Sea Ray Pivot: First Cross-Border Deal

HF Foods has spent most of the past two years talking about transformation, capacity, and becoming the "acquirer of choice" in Asian specialty distribution. This quarter, it put a definitive stamp on that ambition. On July 17, the company signed a Sea Ray acquisition — a Canadian importer of ethnic and specialty frozen seafood — its first transaction outside the United States. As CEO Xi Lin put it on the call: “it is our first transaction outside The United States. and extends our M&A playbook into a new geography.” — Xi Lin, President and Chief Executive Officer · 2026-08-10

The deal carries a base price of CAD 47.9M, roughly $35M, or about 5x Sea Ray's baseline adjusted EBITDA of ~CAD 9.6M. What makes it compelling is the margin profile: Sea Ray runs EBITDA margins in the mid-teens versus HF Foods' 4.2% in Q2. The transaction also diversifies the customer base: Sea Ray's mix skews toward retail and wholesale to Asian specialty grocery stores in Canada, complementing HF's independent-restaurant focus.

Margins Under Pressure Amid Tariffs and Fuel

The strategic excitement did not mask a tougher operating quarter. Revenue hit a record $323.8M, up 2.8%, but gross profit was flat and gross margin slipped to 17% from 17.5%. The culprit was twofold: incremental tariffs and rising fuel. "The increase was driven primarily by higher auto and truck expense reflecting elevated incremental fuel costs of approximately $1.4 million year over year," explained McGarry. The company also cited softer foot traffic and the need for aggressive pricing to gain share.

Net income still improved to $2.6M from $1.2M, thanks to a $1.8M employee retention credit, a $1.1M IEEPA tariff refund, and favorable interest rate swap changes. But those are one-time items. The underlying operational trend is still tight, with adjusted EBITDA down 2% year-over-year.

What It Means: A Bigger Platform and a Margin Path

The Sea Ray deal is not just a tuck-in; it gives HF Foods a platform for growth in Canada and potentially new channels in the U.S. Sea Ray has already established a direct import operation in Los Angeles, which HF's West Coast infrastructure can accelerate. "We see Sea Ray as a great platform to potentially open up new channels here for us," Xi Lin said (“We see Sea Ray as a great platform to potentially open up new channels here for us.” — Xi Lin, President and Chief Executive Officer · 2026-08-10). The company also sees cross-selling opportunities, particularly in seafood, which already accounts for about 36% of its revenue.

This strategic push is backed by a strengthening balance sheet. Post-quarter-end, HF Foods refinanced and upsized its credit facility, boosting revolving commitments to $140M and term loans to $125M, with maturities extended to 2031 and 2036. That gives management meaningful dry powder for further M&A. And the appetite for deals is growing — as Felix Lin (CEO at the time) noted in May: "We are definitely seeing the amount of inbound M&A calls tick up over the last several months" (“We are definitely seeing the amount of inbound M&A calls tick up over the last several months.” — Felix Lin, President and Chief Executive Officer · 2026-05-11). That M&A funnel is now producing concrete results.

For a company that trades near all-time lows — the stock is down ~12% over the last 90 days and has never recovered from its 2019 peak — this pivot could be the catalyst that rewrites the narrative. But investors will be watching whether the margin-accretive Sea Ray business can offset persistent tariff and fuel drags. As management guides to a 4.5–5% consolidated adjusted EBITDA margin over 3–5 years, the deal is a deliberate step toward that target. Margin profile is no longer just a goal; it's now the shape of the business.

Earlier, the company had been building capacity for cross-selling — as they noted in August 2025: "we have a parallel strategy going on... all the investment that's going in, it's about addressing our capacity constraints" (“Yes. Look, I mean, we have a parallel strategy going on, right? One, from an organic growth standpoint, all the investment that's going in, it's about addressing our capacity constraints.” — Xi Lin, President and Chief Executive Officer · 2025-08-11). Sea Ray adds a new dimension to that strategy.

It is the clearest evidence yet of what we mean when we say we are the acquirer of choice in this category.