For the fiscal first quarter ended Dec. 31, 2022, Valvoline’s net revenue grew 15.8% to $332.80 million, and its system-wide store sales rose 16.9% to $644.00 million.
System-wide same-store sales (SSS) increased 11.9% on top of 13.7% growth a year ago. This breaks down as company SSS up 12.7% and franchise SSS up 11.2%. Valvoline’s net revenue growth also was aided by gains in vehicles served and the addition of 111 net new shops over the last 12 months.
“Just over 60% of the same-store sales growth was driven by pricing actions taken in the second half of last year, with the most recent pricing done in September,” Lori Flees, president of retail services, said on Valvoline’s Feb. 7 earnings call. “The balance of growth was driven by volume, premium mix and non-oil change revenue growth. On the volume side, we’re pleased to see continued customer growth of over 3% year over year in our same stores and non-oil change revenue growth.”
The company’s gross profit increased 5.9% to $118.80 million, attributable to increased non-oil change services and premiumization in addition to unit growth. This more than offset inflationary product and labor costs and expenses related to company store growth.
Gross margin, however, fell from 39.1% to 35.7% on a year-over-year basis, primarily because of the dilutive impact of passing-through cost increases in company store operations in addition to increased labor and product expenses, which included higher additive costs and delivery fees.
And, while Valvoline’s net income decreased 5.9% to $81.90 million, its adjusted EBITDA increased 1.2% to $73.30 million. “Our profits performed slightly ahead of the strong quarter we posted in fiscal 2022,” CEO Sam Mitchell told analysts on the call. “We anticipate the profit growth to accelerate in the balance of the year, and we remain confident in our EBITDA guidance target of between $370 million and $390 million for fiscal year 2023.”
MISCELLANEOUS … Other items of interest from Valvoline’s quarterly report and earnings call …
• Aramco’s acquisition of Valvoline’s Global Products Business is expected to close in “early calendar 2023.” Management expects total proceeds from the transaction to be $2.65 billion in cash and approximately $2.25 billion after tax and other adjustments. The plan is to return the majority of the proceeds to shareholders through share buybacks, with the remaining portion of the net proceeds being used for debt reduction.
• 31 new units came onboard during the quarter. Management expects to add 130 to 160 new units in fiscal 2023 (80 to 90 company units and 50 to 70 franchise units). “We continue to believe we can double our unit count over time,” Flees said on the call. “We delivered 31 units in the first quarter and expect unit delivery to accelerate in the remaining quarters. We have significant opportunity to improve our geographic coverage.”
• Flees called the current development pipeline robust. “Over 220 sites have been approved by our new unit review committee and are in various stages of the deal process,” she said. “Our new build sites continue to accelerate system-wide, and the quick-lube market remains highly fragmented, providing ample opportunity for acquisition. We have over 90 sites that are currently in construction or under a signed purchase agreement to be acquired.”
• Mitchell told analysts the goal is to have more than 3,500 shops. As of Dec. 31, 2022, Valvoline had a total of 1,746 shops (813 company-operated locations and 933 franchised shops).
• Management expects Valvoline’s net revenue to come in between $1.40 billion and $1.50 billion in fiscal 2023, which translates to net revenue growth of 14% to 18%.
• Valvoline’s target for SSS growth in fiscal 2023 is 8% to 12%.
• Full-year system-wide sales growth is forecast to be between 16% and 20%. — reporting by Marc Vincent, editor