For the third quarter of 2023, Driven Brands Holdings reported $1.61 billion in systemwide sales (+10.0% year over year) from which the company generated $581.03 million in revenue (+12.5%), primarily led by Driven’s Maintenance segment followed by its Paint, Collision & Glass segment.
The increase in systemwide sales breaks down as 6.4% consolidated same-store sales growth and 6.0% net store growth (55 net new locations).
MAINTENANCE … Systemwide Maintenance segment sales rose 22.1% to $502.48 million, primarily driven by the Take 5 Oil Change business, while same-store Maintenance sales increased 9.1% on top of a 14.4% gain a year ago for a two-year stack of +23.5%.
“This quarter, Take 5 Oil Change, both company and franchise locations, continued to drive customer acquisition and delivered strong same-store sales of 14%,” Executive Vice President and COO Danny Rivera told analysts on Driven’s Nov. 1 earnings call. “We continue to outpace the competition as our differentiated 10-minute, stay-in-your-car oil change model builds brand recognition with top quartile [net promoter score (NPS)] scores and increasing repeat rates.
“Further, we grew our footprint over 23% year over year, and our franchise pipeline remains robust at more than 750 units. We expect asset-light franchise store growth to drive our footprint growth moving forward. Our franchisees remain excited about the performance of their stores and, of course, the returns they’re generating.”
He added: “I’m also excited that, in Q4, we will be celebrating our 1,000th store opening, and we just recently opened our 300th franchise location.”
Driven also is rolling out Take 5 Rewards, a new loyalty program that will initially focus on Take 5 Oil Change and Car Wash. The company will be testing the program in the fourth quarter.
“Our new platform will offer a Take 5 Oil Change subscription and a combo subscription across both Take 5 Oil Change and Car Wash,” Rivera told analysts. “Our subscriptions will also be coupled with a loyalty program designed to drive frequency across both businesses.”
Driven’s Maintenance segment includes the brands Meineke, Merlins, Econo Lube and Take 5 Oil Change.
Take 5 Oil Change represents over 90% of Driven’s maintenance segment.
The Meineke business, which is a pure franchise business, continues to perform very steady, according to comments President and CEO Jonathan Fitzpatrick made on the call.
PLATFORM SERVICES … Systemwide Platform Services segment sales decreased 8.8% to $119.20 million in the third quarter of 2023, and same-store sales declined 4.6% up against an 8.7% increase a year ago for a two-year stack of +4.1%.
It should be noted that 1-800-Radiator saw sequential improvement from negative 11% in the second quarter to down less than 5% in the third quarter, according to statements made by Executive Vice President and CFO Gary Ferrera during the call.
The segment distributes automotive aftermarket parts to parts stores, repair facilities and service stations as 1-800-Radiator & A/C and PH Vitres d’Autos. Additionally, it provides consulting services to independently owned or nationally branded auto and collision repair shops (the Automotive Training Institute).
PAINT, COLLISION & GLASS … Systemwide Paint, Collision & Glass segment sales grew 8.2% to $845.64 million, and same-store sales increased 8.6% on top of a 15.7% rise a year ago for a two-year stack of +24.3%.
On the call, Rivera noted that Driven has encountered a series of challenges integrating the 12 businesses it acquired that ultimately make up its Glass business.
“These integration challenges have resulted in underperformance of our U.S. Glass business in 2023,” he said, stating that it will take several quarters to get through these challenges. “We are continuing to make progress, and our goal is to exit Q1 of 2024 with these integration challenges largely in the rearview mirror.”
Rivera also noted that management will slow down new unit growth in the fourth quarter and in 2024 to make sure that the base business is performing at expected levels.
The Paint, Collision & Glass segment includes the brands Maaco, Carstar, ABRA, VitroPlus, Uniglass Plus, Docteur du Pare-Brise, GoGlass, Fix Auto USA and AutoGlassNow.
CAR WASH … Systemwide Car Wash segment sales increased 2.2% to $141.71 million. Same-store sales decreased 4.0% — entirely driven by the U.S. Car Wash operation — on top of a 9.0% decline a year ago for a two-year stack of -13.0%.
“We are experiencing softer retail volumes in the U.S. Car Wash segment, driven by a challenging macro environment for our most discretionary business and continued competitive intrusion,” Rivera said. “However, our international Car Wash business continues to perform well despite challenging conditions in Europe.”
During the quarter, management performed a strategic review of its U.S. Car Wash operations, which included an evaluation of store performance, the competitive landscape, revenue and expense optimization opportunities, and capital requirements. As a result, Driven closed 29 locations, halted the opening of new company-operated locations, and began marketing property and equipment for sale that will not be used by the company.
The actions resulted in $111 million in impairment charges during the three months ended Sept. 30 as well as the transfer of $271 million in assets from property and equipment to assets held for sale. Additionally, management determined that a triggering event had occurred and recorded a full goodwill impairment charge of $851 million during the 2023 third quarter.
“We are making steady progress on the U.S. Car Wash business and getting the U.S. Glass integration behind us,” Fitzpatrick told analysts on the call, adding that will likely take several quarters.
The segment’s brands are Take 5 Car Wash and IMO.
BOTTOM LINE … Back to the company’s consolidated third quarter 2023 performance, Driven reported a $799.31 million net loss for the quarter compared to $38.39 million in net income a year ago, attributable to aforementioned impairment charges.
Adjusted net income declined 38.7% to $33.72 million, primarily because of decreased margins within the Car Wash and Paint, Collision & Glass segments as well as increased interest and depreciation expense. This was partially offset by margin improvements within the Maintenance and Platform Services segments.
Driven’s adjusted EBITDA decreased 1.1% to $128.62 million.
By segment …
• Maintenance’s adjusted EBITDA rose 25.8% to $86.49 million, which management attributed primarily to revenue growth, cost management and operational leverage. And, segment adjusted EBITDA margin grew more than 110 basis points versus the third quarter of 2022.
• Car Wash adjusted EBITDA declined 37.5% to $24.43 million, mainly driven by decreased same-store sales within company-operated store sales and increased company-operated store costs, primarily relating to rent expense for properties included in sale-leaseback transactions in the trailing 12 months, increased expenses relating to supplies and utilities, and increased labor relating to the 49 net new U.S. company-operated stores in the trailing 12 months. Car Wash segment adjusted EBITDA margin fell from 28% to 17% year over year.
• Paint, Collision & Glass adjusted EBITDA decreased 15.8% to $32.76 million, largely due to higher employee-related costs and reduced volume associated with company-operated stores. This was only partially offset by revenue growth from acquisitions and same-store sales growth. Segment adjusted EBITDA margin declined from 34% to 25% year over year.
• Platform Services adjusted EBITDA increased 13.4% to $22.42 million, which management attributed to revenue growth, cost management and operational leverage. Segment adjusted EBITDA margin increased from 38% to 40% year over year.
During the quarter, Driven repurchased more than 3.60 million shares of its common stock for roughly $50 million at an average price of $13.87, completing the repurchase authorization approved by the board of directors in August 2023. All repurchases were made on the open market.
Management has reaffirmed its financial outlook for fiscal year 2023, including the expectation of generating approximately $2.30 billion in revenue for the year. — Reporting by Marc Vincent, Editor