Valvoline Inc Q4 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: David Bellinger - Mizuho Securities USA, LLC - Analyst : Just focusing on Q4 first. Comps are getting a little light this quarter. Maybe they were higher if we back out some of the external factors. But bigger picture, how should we think about the 6% to 9% longer-term comp sales algorithm? You just mentioned you might have a quarter below 5% for next year. So how do we square all that together and just give us more confidence in the 6% to 9% going forward.

Question: David Bellinger - Mizuho Securities USA, LLC - Analyst : Got it. I appreciate all those details. And then my second question, if we back out the refranchising piece for 2025, that implies adjusted EBITDA is growing at a lesser pace than total revenues. It looks like adjusted EBITDA is up about 10% at the midpoint, revenue is up about 12%. So could you just help us unpack that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 2:00PM, VVV.N - Q4 2024 Valvoline Inc Earnings Call And then in what areas of the business are you expecting some type of margin compression? I think you mentioned tech modernization and talent. So maybe just give us more details on those could be helpful.

Question: Steve Zaccone - Citi Investment Research (US) - Analyst : It's Steve Zaccone from Citi. I wanted to follow up on the prior question because I think -- can you guys hear me?

Question: Steve Zaccone - Citi Investment Research (US) - Analyst : Okay. Great. Sorry. I wanted to follow up on the prior question because the guide for 5% to 7% same-store sales this year and then the uncertainty of when you're going to address the algorithm. Maybe help us think through what you view as the market growth rate for the industry, right? And then like the overall ticket versus transaction because we used to have a formula to get to that 6% to 9% growth. Has anything changed there? Because I think we're all going to kind of come off this call -- and is 5% to 7% the right run rate for the business? Could it be potentially a little bit lower than that? I guess like that's where I think we're trying to just understand as we go forward.

Question: Steve Zaccone - Citi Investment Research (US) - Analyst : Okay. Okay. That's helpful detail. And then the follow-up I had is just on the decision to refranchise some stores. What's the decision criteria to potentially do more of these as we go over the course of the year and then even on a multiyear basis? Just why does this make sense for you? Like how do you think about potential additional ones in the future.

Question: Steve Zaccone - Citi Investment Research (US) - Analyst : Okay. And Mary, all the best on your retirement, if this is your last call.

Question: Justin Kleber - Robert W. Baird & Co., Inc. - Analyst : First one I wanted to ask just about non-oil change revenue and where you finished '24 at in terms of percentage of system-wide sales? And then how much variability is there across the system from a penetration standpoint, what tends to drive that variability?

Question: Justin Kleber - Robert W. Baird & Co., Inc. - Analyst : Very helpful. And then unrelated follow-up. Mary, I just wanted to get some more color on the comment regarding the decline in collection reimbursement payments for waste oil it seems like, at least from my perspective, that safety cleans decision to make this change is being driven by a decline in base oil, which I'd assume would be beneficial to your lubricant cost. But it sounds like you expect these changes to be a net negative to product costs. I just wanted to clarify that.

Question: Mike Harrison - Seaport Global Holdings LLC - Analyst : Maybe just a follow up on the discussion just we're going through on lower product costs, helping you in Q4. Can you talk a little bit about gross margin expectations into next year and maybe some of the puts and takes as we're thinking about base oil costs, the waste oil collection reimbursement? I don't know if anything is changing or evolving in your agreement with Aramco around the supply agreement. And obviously, there is a leverage and kind of labor cost issue that could be affecting your gross margin. So do you -- I mean, -- at the end of the day, do you expect gross margin to be up next year or kind of flat year-over-year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 2:00PM, VVV.N - Q4 2024 Valvoline Inc Earnings Call

Question: Mike Harrison - Seaport Global Holdings LLC - Analyst : All right. That makes sense. And then I wanted to ask on the refranchising of stores, it looks like about 56 stores now and a value of or $24 million worth of EBITDA. You mentioned that you want to make sure you're getting the value for the stores that you're selling to these franchisees. So what do the proceeds from those transactions look like? What kind of multiple do you expect to get on that $24 million of EBITDA ?

Question: Mike Harrison - Seaport Global Holdings LLC - Analyst : Okay. And the $71 million for the stores you sold this quarter, I believe you had said that, that was going to be about a $2 million EBITDA headwind in the quarter. So $8 million a year, so you got less than 10 times -- closer to 9 times EBITDA?

Question: Tom Wendler - Stephens Inc. - Analyst : Most of my questions have been answered, but maybe going back to same-store sales comps. With the new way of looking at maturing stores, can you give us an idea of the impact it had on fiscal year 2025 outlook?

Question: Tom Wendler - Stephens Inc. - Analyst : Perfect. And then maybe just touching on repurchases, $15 million in the fourth quarter. What kind of repurchase activity are you expecting as you look into fiscal year '25?

Question: Peter Keith - Piper Sandler & Co. - Analyst : Looking at the EBITDA guidance and trying to adjust out the refranchising and get to roughly about 10% EBITDA growth at the midpoint. And it seems like with the Q&A, you're characterizing FY25 as an investment year. So the heart of the question is, could you maybe frame up how much pressure the investments are causing on the EBITDA guide? Like is there a certain percent taking

Question: Peter Keith - Piper Sandler & Co. - Analyst : Okay. And that's people and technology?

Question: Peter Keith - Piper Sandler & Co. - Analyst : Okay. And then you did flag some potential concern with tariffs. I wasn't thinking of you guys as tariff exposed. Maybe you could frame up what your exposure is? I guess, is there particular countries where you have exposure? Is it direct import exposure? Or is it more indirect and your suppliers would pass on pricing? Just help us understand how that could have some negative impact potentially. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 2:00PM, VVV.N - Q4 2024 Valvoline Inc Earnings Call

Question: Peter Keith - Piper Sandler & Co. - Analyst : And the filters and wipers are those direct source? Or those are still indirect through suppliers, as it relates to China?

Question: Bret Jordan - Jefferies LLC - Analyst : I guess if I think about the comp -- the mix. Could you give us more color on just really what was car count, what was same service price and what was premiumization in the comp, in the quarter?

Question: Bret Jordan - Jefferies LLC - Analyst : What are you seeing from a consumer trend, I guess, are you seeing deferral or same customer oil change cycle getting extended at all or the ability to sell premiumization, essentially pressured as the year has gone on? Or are you seeing people getting more optimistic as we get into the end of the year and the elections behind us?

Question: David Lantz - Wells Fargo Securities, LLC - Analyst : Within the $160 million to $185 million unit guidance for '25, is it safe to assume that, that still embeds 100 company-operated stores and the balance being franchised? And then, can you also talk about the opening cadence throughout the year in a bit more detail?

Question: David Lantz - Wells Fargo Securities, LLC - Analyst : Got it. That's helpful. And then on the fleet business, transactions have grown at a 14% CAGR over the last three years. Curious if you can provide any additional color around expectations for 2025. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 2:00PM, VVV.N - Q4 2024 Valvoline Inc Earnings Call

Question: Steve Shemesh - RBC Capital Markets Wealth Management - Analyst : And Mary, I'll offer my congratulations as well. Just wanted to circle back to top line. I know you mentioned you expect 1Q same-store sales to be a bit higher than the rest of the year. Can you maybe comment on where we're trending quarter-to-date? And I guess, just how much of a benefit you think hurricane deferral from 4Q into 1Q might contribute? And then just secondly, you mentioned the possibility of a quarter coming in below the full year year guide. I mean I guess we're already seeing the tire and maintenance shops being a little bit more promotional at this point. So it feels like that's kind of the norm, I guess, what would need to happen to get you to a sub-5% in the quarter?

Question: Steve Shemesh - RBC Capital Markets Wealth Management - Analyst : Okay. And just to clarify, I mean when there are promotions in the environment, you're holding price largely. So we're we're anticipating that there's going to be somewhat of a traffic slowdown, but you're still going to get at least flat or maybe some positive pricing there?