Valvoline Q1 Earnings Call Highlights

Core Insights - Valvoline reported a strong first quarter for fiscal 2026, with system-wide same-store sales increasing by 5.8% and net sales reaching $462 million, reflecting an 11% increase on a reported basis and a 15% increase when adjusted for refranchising impacts [4][7][10] Financial Performance - The company achieved a gross margin of 37.4%, up 50 basis points year-over-year, attributed to labor and product cost leverage, despite rising service delivery costs [10] - Adjusted EBITDA margin increased by 60 basis points to 25.4%, while the company reported a GAAP loss of $32.2 million primarily due to divestitures required by the FTC [12] - Operating cash flow improved to $64.8 million, with free cash flow increasing by approximately $20 million year-over-year to $7.4 million [13] Store Expansion and Acquisitions - The acquisition of Breeze added 162 stores, significantly increasing the store base, while Valvoline also opened 38 net new stores in the quarter, including 10 from franchise partners [6][8] - The company aims to add 250 new units by fiscal 2027, with a healthy pipeline for both company and franchise development [8] Customer Engagement and Market Trends - Valvoline's mobile service delivery initiative contributed about 20 basis points to same-store sales, focusing on consumer and fleet convenience [1] - The company reported strong customer feedback, with a 4.7-star rating across the network and Net Promoter Scores over 80% [7] Operational Initiatives and Technology - Management is implementing a multi-year technology strategy, including a new CRM system and cloud migration, which is expected to improve efficiencies and reduce maintenance costs over time [19] - Marketing initiatives, such as the "Instant Transfer Portal" campaign, have generated strong engagement, and the company is exploring a national advertising fund starting in fiscal 2027 [18] Financial Strategy and Leverage - Valvoline's leverage ratio stands at 3.3x net debt to adjusted EBITDA, with plans to reduce it to approximately 2.5x before resuming share repurchases [5][14] - The company anticipates a pre-tax interest expense increase of about $33 million in fiscal 2026 due to a new Term Loan B [14]