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VI

VALVOLINE INC (VVV)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 results were broadly in line with company expectations but modestly below Street on key lines: revenue $403.2M vs $404.1M consensus, adjusted EPS $0.34 vs Primary EPS consensus $0.36, and EBITDA (GAAP) $96.2M vs $106.1M consensus; management reaffirmed full-year guidance and highlighted minimal expected FY25 tariff impact (S&P Global estimates marked with “*” below).
  • System-wide SSS grew 5.8% with balanced ticket and transaction contributions (1/3 transactions, 2/3 ticket; would be closer to 50/50 without leap day/Easter day-mix), while network expansion continued with 33 net store additions to 2,078 total .
  • Gross margin rate declined 30 bps YoY to 37.3% (depreciation from new stores and product cost deleverage), and SG&A delevered 150 bps from refranchising and tech investments; management framed FY25 as a “reset year,” with SG&A leverage expected to improve beyond FY25 .
  • Strategic catalysts: Breeze Autocare acquisition pending FTC review (Second Request; aiming to close in 2H FY25) and CFO transition to Kevin Willis effective May 19; both should support growth and execution capacity if closed/successful .

What Went Well and What Went Wrong

  • What Went Well

    • Durable demand and comps: System-wide SSS +5.8% with balanced drivers; transactions would have been stronger excluding day-mix headwinds (leap day and Easter) .
    • Network growth/visibility: 33 net additions in Q2 (68 YTD) and confidence in 160–185 FY25 additions; refranchising building new-store pipelines in converted markets .
    • Tariff mitigation: Expect FY25 operating cost impact < $4M system-wide; base oils/additives largely exempt; supply shifted for ancillary products (filters/wipers) from China to Vietnam; potential pass-through as needed .

  • What Went Wrong

    • Modest underperformance vs Street: Revenue ($403.2M) slightly below consensus ($404.1M*), Primary EPS below consensus ($0.34 vs $0.36*), and EBITDA (GAAP) below consensus ($96.2M vs $106.1M*) (S&P Global for consensus).
    • Margin pressure: Gross margin rate -30 bps YoY to 37.3% (new-store depreciation, product cost mix) and SG&A +150 bps deleverage from refranchising and tech investments; adjusted EBITDA margin 25.9% (-110 bps YoY) .
    • Refranchising optics: While value-accretive long term, refranchising complicates YoY comparisons and pressured reported top line and SG&A leverage in FY25 “reset year” .

Financial Results

Summary Financials by Quarter (oldest → newest)

MetricQ4 FY24Q1 FY25Q2 FY25
Net Revenues ($M)$435.5 $414.3 $403.2
Diluted EPS – Continuing Ops ($)$0.68 $0.73 $0.30
Adjusted EPS ($)$0.46 $0.32 $0.34
Adjusted EBITDA ($M)$124.1 $102.8 $104.4
Adjusted EBITDA Margin (%)28.5% 24.8% 25.9%
Net Profit Margin (%)20.5% 22.7% 9.5%

Notes: Net profit margin defined as income from continuing ops / net revenues. Adjusted EPS/EBITDA are non-GAAP as defined and reconciled in company materials.

Q2 FY25 vs Prior Year, Prior Quarter, and Estimates

MetricQ2 FY24Q1 FY25Q2 FY25 ActualStreet ConsensusBeat/Miss
Net Revenues ($M)388.7 414.3 403.2 404.1*Miss (slight)
Diluted EPS – Continuing Ops ($)0.33 0.73 0.30 0.36 (Primary EPS)*Miss
Adjusted EPS ($)0.37 0.32 0.34 0.36 (Primary EPS)*Miss
EBITDA (GAAP) ($M)98.4 172.7 (one-time benefits) 96.2 106.1 (EBITDA)*Miss
Adjusted EBITDA ($M)105.1 102.8 104.4 ——

Estimates marked with * are Values retrieved from S&P Global.

Why: Misses reflect refranchising-driven deleverage in SG&A/optics and new-store depreciation impacting gross margin; demand fundamentals and SSS remained solid, and guidance was reaffirmed .

Operating KPIs and Store Footprint

KPIQ4 FY24Q1 FY25Q2 FY25
System-wide Store Sales ($M)$826.8 $820.3 $825.5
System-wide SSS (%)5.4% 8.0% 5.8%
Total System-wide Stores (end of period)2,010 2,045 2,078
Net Store Additions (Quarter)+49 +35 +33

Additional Q2 details: Gross margin rate 37.3% (-30 bps YoY); adjusted EBITDA margin 25.9% (-110 bps YoY) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance (Q2)Change
System-wide SSS GrowthFY255%–7% 5%–7% (reaffirmed) Maintained
System-wide Store AdditionsFY25160–185 Confident in 160–185 (reaffirmed) Maintained
Net RevenuesFY25$1.67B–$1.73B Reiterated range Maintained
Adjusted EBITDAFY25$450M–$470M Reiterated range Maintained
Capital ExpendituresFY25$230M–$250M No update provided in Q2; FY25 still implied Maintained
Adjusted EPSFY25$1.57–$1.67 No update provided in Q2 call; FY25 algorithm intact Maintained
Share RepurchasesFY25$40M–$70M (subject to market) Repurchases paused pending Breeze closing Practically Paused

Earnings Call Themes & Trends

TopicQ4 FY24 (Q-2)Q1 FY25 (Q-1)Q2 FY25 (Current)Trend
Guidance/OutlookIssued FY25 guide: SSS 5–7%, 160–185 adds; Rev $1.67–$1.73B; Adj. EBITDA $450–$470M On track; refranchising completed; strong start Guidance reaffirmed; confidence into summer drive Stable/Confident
Refranchising ImpactSet FY25 “reset” optics; disclosed refranchised store financials Completed transactions; momentum building with new partners Near-term SG&A deleverage; recast comparisons; pipeline accelerating Improving medium-term
Tariffs/Supply Chain——Minimal FY25 impact (<$4M); base oils/additives largely exempt; shifted ancillary supply to Vietnam Managed risk
Pricing/NOCR—Balanced ticket/transaction; NOCR initiatives boosted comps Pricing rational industry-wide; premium mix, net pricing key; NOCR still positive Enduring tailwind
Regulatory (Breeze)Announced refranchising/portfolio actions Signed Breeze deal; growth acceleration FTC Second Request; aim to close 2H FY25 Timing risk, still positive

Management Commentary

  • “We anticipate the potential tariff increases will have a minimal impact in fiscal 2025… we will continue to take actions to mitigate, including the flexibility to adjust pricing when needed.” — Lori Flees, CEO .
  • “Gross margin rate declined 30 basis points year-over-year to 37.3%… deleverage on product cost and store expenses, primarily driven by depreciation from new stores… offset by leverage in labor.” — Mary Meixelsperger, CFO .
  • “Adjusted EBITDA is $104 million, a 6% increase over the prior year on a recast basis… adjusted EPS of $0.34 per share also increased 3% considering the refranchising impacts.” — Mary Meixelsperger .
  • “We… added approximately 200 additional stores through the acquisition of Breeze Autocare… we hope we can close the transaction in the second half of fiscal 2025.” — Lori Flees .

Q&A Highlights

  • SSS mix: ~1/3 transactions, 2/3 ticket; ~50/50 if adjusting for leap day/Easter day-mix (~50 bps headwind to transactions) .
  • SG&A deleverage: FY25 is a reset year due to refranchising and tech step-ups; expect moderation and leverage improvement going forward (beyond FY25) .
  • Gross margin cadence: Q2 broadly in line; ex-new-store depreciation, gross margin up ~10 bps; back-half typically stronger on seasonal leverage .
  • Base oils/pricing: Base oil moves tend to lag crude; haven’t seen benefits flow through yet; industry does not typically reduce posted prices as inputs fall; franchise pass-through dynamics offset some tailwinds .
  • Breeze integration/regulatory: FTC Second Request; focus on closing in 2H FY25; existing ERP/HRIS/marketing data platforms should aid integration efficiency .

Estimates Context

  • Q2 FY25 vs S&P Global consensus: Revenue $403.2M vs $404.1M estimate*; Primary EPS $0.30 vs $0.36 estimate*; EBITDA (GAAP) $96.2M vs $106.1M estimate*. Adjusted EPS reported $0.34 (company) .
    Values retrieved from S&P Global.
  • Company reaffirmed FY25 guidance (revenues $1.67–$1.73B, adjusted EBITDA $450–$470M, SSS 5–7%, 160–185 store adds), suggesting limited need for downward estimate revision absent new macro/tariff pressures or Breeze timing slippage .

Q2 FY25: Actual vs Consensus Detail

MetricActualConsensusDelta
Revenue ($M)403.2 404.7*-1.5
Primary EPS ($)0.30 0.36*-0.06
EBITDA (GAAP) ($M)96.2 106.1*-9.9

Estimates marked with * are Values retrieved from S&P Global.

Key Takeaways for Investors

  • Slight misses vs consensus but reaffirmed FY25 guidance and resilient demand (nondiscretionary service, balanced comps) support the medium-term growth algorithm; near-term optics are refranchising- and depreciation-driven rather than demand-related .
  • Seasonal tailwinds (summer drive) and historic back-half margin strength should aid 2H; management flagged gross margin and SG&A leverage improving sequentially vs Q2 .
  • Tariff risk appears contained for FY25 (<$4M), with supply shifts and potential pricing flexibility as offsets; minimal near-term COGS pressure expected .
  • Breeze Autocare remains a key catalyst; closure timing (2H FY25 target) and integration execution could accelerate unit growth and earnings power; FTC review is the primary uncertainty .
  • Tech investments (ERP, HRIS, marketing data to cloud) elevate execution/automation potential and should support SG&A leverage and labor efficiency beyond the reset year .
  • Pricing environment remains rational; premiumization and NOCR penetration continue to support ticket growth even as NOCR laps tougher compares .
  • Capital allocation: Share repurchases paused ahead of Breeze; leverage at 3.4x (rating agency adjusted) provides capacity but maintains discipline; watch for post-close capital deployment cadence .