Q1 2025 Earnings Summary
- Valvoline's management is confident in achieving their long-term unit growth targets, with strong franchise engagement and an expanding pipeline of new units, aiming for 250 new units by fiscal 2027, consisting of 100 company-owned and 150 franchised locations. This indicates significant growth potential in their store network.
- The company is increasing share buybacks, with $60 million repurchased fiscal year-to-date, and believes there is significant undervaluation of the business in the marketplace. This reflects management's confidence in the company's future prospects.
- Valvoline is experiencing strong growth in fleet services, with fleet growth outpacing consumer transaction growth. Management sees a significant market opportunity to continue driving same-store sales through fleet services.
- Expected deceleration in same-store sales growth due to lapping prior year pricing and non-oil change revenue initiatives, along with the negative impact of leap day, may lead to slower top-line growth in upcoming quarters.
- Anticipated deleverage in SG&A as the company invests in technology systems could lead to higher expenses and pressure on operating margins over the remainder of the year.
- Refranchising of company-owned stores will reduce reported revenue and EBITDA, potentially resulting in substantially lower reported growth rates and impacting overall financial performance.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Same-store sales | FY 2025 | 5% to 7% | 5% to 7% | no change |
Net store additions | FY 2025 | 160 to 185 new stores | 160 to 185 units | no change |
Adjusted EBITDA | FY 2025 | $450 million to $470 million | $450 million to $470 million | no change |
Seasonality of Adjusted EBITDA | FY 2025 | Approximately 40% to 45% in the first half | 40% to 45% in front half and 55% to 60% in back half | no change |
Share Repurchase Activity | FY 2025 | $40 million to $70 million | no guidance | removed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Same-store sales | Q4 2024 saw growth at 6.7% (with methodological and weather-driven nuances) , Q3 2024 reported 6.5% growth with moderating factors , and Q2 2024 delivered 7.7% growth driven by ticket and transaction gains. | Q1 2025 achieved 8% growth with strong same-store performance and an expressed confidence for the full year, although caution is noted regarding a deceleration in Q2. | Steady growth with an episodic boost in Q1 2025 while remaining cautious about near-term deceleration. |
Fleet business | Q4 2024 and Q3 2024 highlighted robust growth opportunities, a high CAGR in fleet transactions, and expanding service offerings, although Q2 2024 provided no details. | Q1 2025 emphasized strong fleet growth outperforming consumer transactions, with efforts to expand team capabilities and increase penetration among fleet customers. | Consistent positive sentiment with continued strong growth and an increased focus on expansion. |
Unit growth | Across Q4 2024, Q3 2024, and Q2 2024, significant store additions were noted with detailed franchise pipeline updates and long-term targets (e.g., 250 new stores by fiscal 2027, net additions reaching high double-digits). | Q1 2025 reaffirmed long-term unit growth targets and reported 35 net new store additions, alongside active franchise engagement and pipeline development. | Steady expansion momentum reinforced by strategic pipeline development. |
Refranchising impact | Q4 2024 showed substantial pro forma adjustments impacting revenue (around $100 million in sales) and EBITDA (around $24 million), while Q3 2024 mentioned a modest EBITDA impact (less than $2 million). | Q1 2025 reported that if adjusted pro forma, $12 million of revenue and $3 million of EBITDA would be removed, highlighting an ongoing impact on reported results. | Persistent negative impact on reported profitability, indicating caution for future EBITDA growth. |
Share repurchase & capital allocation | Q2 2024 disclosed a $1.6 billion share repurchase authorization, Q3 2024 provided a $400 million authorization, and Q4 2024 noted strong program execution with significant annual repurchase totals and clear capital allocation priorities. | Q1 2025 detailed opportunistic buybacks totaling approximately $60 million, reinforcing the company’s commitment to returning excess cash to shareholders. | Consistent commitment to shareholder returns, with capital allocation strategies remaining stable. |
Margin pressures & SG&A | Q2–Q4 2024 discussions focused on increased SG&A/G&A due to technology investments, higher depreciation impacting margins, and efforts to offset these with labor efficiencies (e.g., Q3 saw a 40-basis point decline in gross margin, while Q2 noted an 80-basis point improvement partially offset by depreciation). | Q1 2025 reported a 40bp increase in SG&A driven by technology investments while achieving an 80bp improvement in gross margin (offset partly by increased depreciation expense). | Persistent cost pressures driven by investments, with gradual efficiency gains amid rising expenses. |
Internal control & ERP | In Q2 2024 and Q3 2024, significant ERP system implementation challenges and material IT control weaknesses were discussed, with active remediation efforts underway to restore controls. | In Q1 2025 there was no mention of internal control weaknesses or ERP risks, suggesting that remediation has largely been completed or that these issues are no longer a focus [no citation]. | Issues appear largely resolved, indicating an improved internal control environment. |
Macroeconomic uncertainty | Q2–Q4 2024 earnings calls frequently addressed tariffs, inflationary pressures, competitive dynamics, and labor issues, with varying degrees of concern noted about political risks and cost pressures. | Q1 2025 did not mention macroeconomic uncertainty or competitive pressures, suggesting that these factors may have stabilized or are being de‐emphasized in current discussions. | Shift away from macroeconomic concerns in Q1 2025, which may indicate stabilization or de-prioritization of these topics. |
Lubricant costs | Across Q2 to Q4 2024, discussions noted modest fluctuations in lubricant and base oil costs due to geopolitical factors, with potential cost pass-through effects anticipated later in the year. | Q1 2025 noted that increases in crude prices would likely have a delayed impact on base oil and lubricant costs, as inventory flow-through causes a lag in pass-through. | The risk remains consistent but with an expected delay in cost impact, maintaining caution for future periods. |
Battery offering | Q2 2024 covered operational challenges with battery storage, testing, and logistics, while Q3 2024 mentioned minor customer deferrals; Q4 2024 did not address battery operations. | Q1 2025 did not report any operational challenges related to batteries, only noting seasonal demand increases, indicative of improved operational performance. | Operational challenges appear to have been resolved, reflecting improvement and positive seasonal trends. |
Labor management efficiency | Q2 2024 highlighted challenges in achieving incremental labor efficiency in the back half of the year, while Q3 and Q4 2024 provided updates indicating modest improvements and proactive management of labor costs despite inflation pressures. | Q1 2025 showed positive outcomes with improved gross margins attributed in part to labor efficiency, and no significant challenges were reported. | Improved labor efficiency with effective cost management strategies leading to a more positive sentiment. |
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Guidance and EBITDA Growth
Q: Why does full-year EBITDA growth slow after strong Q1?
A: Despite a 14% EBITDA growth in Q1, the full-year guidance implies slower growth due to the impact of refranchising. The largest refranchising transaction closed in December, meaning Q1 still benefited from those stores. Adjusting for refranchising, sales and EBITDA growth remain consistent with trends. The reported growth appears lower because approximately $100 million in sales and $25 million in earnings are removed for the full year due to refranchising. -
Same-Store Sales Outlook
Q: How is same-store sales growth expected to develop?
A: We continue to see strong transaction growth into Q2, but expect some deceleration due to lapping last year's pricing and non-oil change initiatives and the impact of leap day, which will reduce Q2 comps by over 100 basis points. Despite this, we feel good about our full-year guidance and anticipate balanced growth in the back half of the year. -
Gross Margin Expectations
Q: Any changes to gross margin outlook for full year?
A: Our gross margin guidance remains unchanged. We had an 80 basis point increase in Q1, consistent with expectations. While we expect some deleverage due to refranchising, we believe any reduction in waste oil recovery revenues will be offset by lower product costs, minimizing the impact on gross margins for the year. -
Share Buybacks
Q: Will you increase share repurchases this year?
A: We repurchased $40 million in Q1 and an additional $20 million after quarter-end, totaling $60 million year-to-date. We are accelerating buybacks to take advantage of share price weakness, believing the business is significantly undervalued. -
Transaction Growth Drivers
Q: What's fueling recent transaction growth?
A: Growth is driven by our expanding active customer base, with customer satisfaction scores up 200 basis points year-over-year, leading to strong retention. We're not seeing significant competitive changes affecting our performance. -
New Unit Build Cost Reduction
Q: How much can you reduce new unit build costs?
A: By redesigning our prototype and value-engineering buildings and equipment, we expect to reduce build costs by 10% to 20%. This includes optimizing the number of service bays and moving to a modular design, lowering initial capital costs and improving returns. -
Premiumization Tailwind
Q: How high can premium oil penetration go?
A: Our premium oil mix is about 80%, including synthetic blends and full synthetics. Continued trade-up is driven by an evolving car fleet requiring premium oils and older vehicles needing better maintenance. This should provide a 100 to 150 basis point comp tailwind for years to come. -
SG&A Trends
Q: What's causing SG&A per store to grow?
A: We expect modest SG&A deleverage due to investments in technology, such as replacing our ERP and HRIS systems with retail-focused solutions to support growth. These essential investments are increasing SG&A per store but are crucial for scaling the business. -
Fleet Business Performance
Q: How is the fleet business performing?
A: Our fleet segment continues to outpace consumer transaction growth. Investments in our team and capabilities are paying off, with success in growing the account base and increasing penetration. There's significant opportunity to drive same-store sales through fleet services. -
Promotional Environment
Q: Has the promotional environment changed recently?
A: We're not seeing significant changes in promotions or competitive actions impacting our business. While there have been episodic promotions from competitors outside our segment, they've been transitory and haven't materially affected us. Our strong brand and customer experience continue to drive performance.
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