Another Strong Quarter For Valvoline’s Quick Lubes Unit

For the fiscal third quarter ended June 30, 2019, Valvoline’s Quick Lubes segment (Valvoline Instant Oil Change) came through with $211 million in sales — an increase of $44 million, or 26.3%, compared to a year ago. Volume growth increased sales by approximately $13 million, with transactions and average ticket both up.

According to management, transactions benefitted from customer acquisition and retention programs, while premium mix, pricing and an increase in revenue from non-oil-change services led to the improvement in average ticket.

System-wide same-store sales growth was 9.7% on top of a 7.9% gain in the prior year for a two-year stack of +17.6%. Company-owned same-store sales were up 9.2% (two-year stack of +17.9%), while franchised same-store sales growth was 10.0% (two-year stack of 17.4%).

Service center additions and same-store sales growth drove overall momentum in sales and earnings for the period. Operating income rose 26.3% to $48 million, while EBITDA increased 26.7% to $54 million. Adjusted EBITDA rose 21% to $57 million.

Over the last 12 months, 198 total net new service centers have been added to the VIOC system. For the quarter, it was 25 net new locations (18 company-owned and seven franchised). There were a total of 1,352 VIOC shops as of June 30, 2019.

It’s worth noting that Valvoline opened its 500th company-owned service center during the quarter. Additionally, the 850th franchised service center also opened during the period.

The company is currently building 25-plus shops a year. For 2020, the goal is to get to the 40 shop to 50 shop range.

Management has raised its full-year 2019 guidance for VIOC same-store sales. Its previous expectation was +8% to +9% growth. The new guidance calls for +9% to +10% growth.

Other items of interest from Valvoline’s Aug. 1 quarterly report conference call …
• The company is launching a VIOC app. One of its key features is giving customers the ability to see wait times at nearby shops. “We’ve recently moved from the pilot phase to starting a full rollout of the app in our company markets,” CEO Sam Mitchell told analysts on the call. “Our focus in the near term is to drive adoption of the app within our company-owned stores and then do a broader rollout to our franchisees over time.”
• Management touted VIOC’s recall referral initiative. “Our vision for how we grow our business is to be more than just an oil change provider, but really that trusted partner for the car owner in helping them care for the vehicle. And, that includes even referring our customers to our partners to have other services done,” Mitchell said on the call. He also noted early success with its recall awareness program, where VIOC is referring its customers to Valvoline’s car dealer partners for safety recall service.
• The initiative isn’t just for recalls. “There can be some real synergies here in terms of referring our Valvoline Instant Oil Change customers to our partners for service,” Mitchell said, “whether it’s recall work, repair work … potentially a tire sale someday, too.”
• Management is optimistic about VIOC’s pilot program in China. As for the company’s plans for China, Mitchell said “it’s too early to say what that looks like or how fast we are going to go in China.”
• Expansion to other places outside North America isn’t in the cards right now. Mitchell said the Quick Lubes business is not planning on being as aggressive about growing in other countries right now “because of what we have on our plate closer in Canada and the pilot in China, and obviously, just the growth opportunity that we have in the U.S.”         — Marc Vincent