• Net Sales: Increased 11% to $414 million.
• System-wide Same-Store Sales Growth: 8% for the quarter.
• Adjusted EBITDA: Increased 14% to $103 million.
• Gross Margin Rate: Increased 80 basis points to 36.9%.
• SG&A as a Percentage of Sales: Increased 40 basis points to 19.6%.
• Adjusted Net Income: Increased 9% to $42 million.
• Adjusted EPS: Increased 10% to $0.32 per share.
• Net Income (GAAP): $94 million, including a $71 million pre-tax gain from refranchising.
• Net Debt: Just over $1 billion with a leverage ratio of 3.3 times.
• Cash Flows from Operating Activities: $41 million, an increase of $20 million over the prior year.
• Free Cash Flow: Negative $12 million, an improvement of $8 million over the prior year.
• Share Repurchases: Totaled $39 million for the quarter.
• Net Store Additions: 35 net new stores added.
• Refranchising Transactions: 39 stores transferred to a new franchise partner in Central and West Texas.

• Warning! GuruFocus has detected 10 Warning Sign with CTVA.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Valvoline Inc (NYSE:VVV) reported a strong first quarter with system-wide same-store sales growth of 14% and net sales increasing by 11% to $414 million.
• The company successfully added 35 net new stores and completed a refranchising effort in Central and West Texas, transferring 39 stores to a new franchise partner.
• Valvoline Inc (NYSE:VVV) achieved an adjusted EBITDA increase of 14% to $103 million, demonstrating strong financial performance.
• The company has a robust pipeline for new unit growth, with commitments from franchisees to expand the network significantly.
• Valvoline Inc (NYSE:VVV) was recognized as the Leading Automotive Services Retailer and ranked number 24 overall on the Entrepreneur's Franchise 500 list for 2025, highlighting the strength of its brand and franchise model.

Negative Points

• Valvoline Inc (NYSE:VVV) anticipates some deceleration in same-store sales comps in the second quarter due to lapping non-oil change revenue initiatives and pricing actions from the previous year.
• The company expects a negative impact on comps from leap day, which will affect the second quarter by approximately 120 basis points.
• SG&A expenses increased by 40 basis points to 19.6% of sales, driven by continued investments in technology.
• The refranchising transactions are expected to have a larger impact on financials in the remainder of the year, potentially affecting EBITDA growth.
• Valvoline Inc (NYSE:VVV) faces potential challenges from rising oil prices, which could impact product costs and margins if not managed effectively.

Q & A Highlights

Q: What are your initial thoughts on same-store sales for the second quarter, considering tougher comparisons on pricing and non-oil change revenue? A: Mary Meixelsperger, CFO: We've seen good momentum at the start of the quarter, despite some weather-related choppiness. We expect some deceleration due to lapping key initiatives and the impact of leap day, which will have a negative 120-basis-point impact on our comp for the quarter.

Q: Can you provide an update on the gross margin outlook for the year, given the strong start in Q1? A: Mary Meixelsperger, CFO: We are encouraged by the Q1 results, but expect some deleverage from refranchising transactions. Our guidance for the year remains unchanged, as we continue to work on scale and efficiency benefits.

Q: How are you addressing the investment outlay for new units, and what are your targets for reducing build-out costs? A: Lori Flees, CEO: We've redesigned our prototype to reduce costs by 10% to 20%. We're also considering the right size for the number of bays, moving to a modular design to lower average build costs while maintaining flexibility to add bays if needed.

Q: What is driving the improved transaction performance, and how does it relate to the competitive landscape? A: Lori Flees, CEO: The growth is primarily due to an increase in our active customer base and strong customer satisfaction scores. There's no significant change in the competitive landscape affecting our performance.

Q: Can you discuss the impact of refranchising on your EBITDA growth expectations for the year? A: Mary Meixelsperger, CFO: Refranchising will have a significant impact, with a $25 million reduction in earnings for the year. On a pro forma basis, sales and EBITDA growth should align with longer-term trends, but reported growth will be lower due to refranchising.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.