VALVOLINE INC Q2 FY2025 earnings call

• System-wide sales increased 11% to $826 million, same-store sales growth was 5.8%. Total net sales increased 11% when adjusted for refranchising. Adjusted EBITDA increased 6%.
• System-wide store count is 2,078, up 8% over prior year. Kevin Willis to join as CFO effective May 19.
• Tariff impact expected to be minimal; cross-functional team worked with suppliers, most base oils and additives exempt from tariffs, shifted ancillary product supply from China to Vietnam.
• Macro uncertainty: Industry has resilient fundamentals, customers driving more, keeping vehicles longer, seeking convenience; no evidence of service deferral or trade down.
• Strategic priorities: Growth across all household income quartiles and store quartiles; completed customer and marketing database cloud transition; successful university athletic partnerships launch; low attrition rates, moderating wage inflation; implemented first phase of HRIS workday; customer rating of Valvoline Inc. and Steno's at 4.7 out of 5 stars based on over a million surveys.

Net sales for the quarter increased 4% on a reported basis and 11% when adjusted for the impacts of refranchising. System-wide sales increased 11% to $826 million, with same-store sales growth of 5.814%. Gross margin rate declined 30 basis points year over year to 37.3%. Adjusted EBITDA was $104 million, a 6% increase over the prior year on a recast basis. Revenue contribution: Net sales adjusted for refranchising were $403 million, with system-wide sales at $826 million.

• Reaffirmed guidance; expects EBITDA in the range of $450 to $470 million and net revenue in the range of $1.67 to $1.73 billion.
• Same-store sales guidance remains in the 5% to 7% range. Anticipates SG&A margin deleverage to moderate in the back half of the year.

• Tariffs could have a minimal impact but may require cost mitigation actions like pricing pass-through.
• Macro uncertainty in consumer state, though industry has resilient demand drivers.
• Uncertainty regarding FTC approval for the Breeze Auto Care acquisition.

Q: Penetration of non-oil change revenue and impact of macro on deferral?

A: Penetration of non-oil change revenue services is growing, with visual elements like wipers, blades, batteries increasing; customers are resistant to deferring maintenance as price of vehicle upgrades/repairs is high, creating resiliency in the industry.

Q: Pace of new store locations and integration of Breeze Auto Care?

A: Refranchising markets show momentum with new stores opening; Breeze Auto Care is a well-run business complementing geographically, focus on closing FTC transaction; integration will leverage existing investments like ERP and HRIS systems.

Q: Cadence of new store openings and gross margin outlook?

A: Feels good about timing of construction openings and acquisition pipeline, with confidence in guidance range; back half of year typically has stronger margin rates due to summer dry season.