Valvoline(US:VVV)2023-08-09 15:30Financial Data and Key Metrics Changes - Valvoline reported a strong top-line growth with system-wide store sales reaching $720 million, an increase of nearly 18% compared to the prior year [9] - Adjusted EBITDA improved by 27.8% year-over-year, totaling just over $110 million for the quarter [23] - Adjusted EPS for the quarter was $0.43, reflecting strong growth [23] Business Line Data and Key Metrics Changes - The Retail Services business continues to show resilience, with same-store sales growth of 12.5%, driven by increased customer traffic [9][17] - The company added 23 locations in the quarter, bringing the total to 1,804 [10][19] - The demand for quick and trusted service experiences is growing, with 40% of same-store sales growth attributed to increased transactions [17] Market Data and Key Metrics Changes - The company is experiencing a balanced increase in transactions from both new and returning customers, alongside an increase in miles driven [17] - The fleet business, while still a small portion at roughly 10% of top-line revenue, is growing faster than the overall business [61] Company Strategy and Development Direction - Valvoline aims to grow its network aggressively, targeting 3,500 units by 2027, with a focus on increasing the franchise base [38] - The company is committed to returning a substantial amount of proceeds from the sale of the Global Products business to shareholders, with $1.4 billion returned this year [8][24] - The leadership transition is set to continue with Lori Flees as the incoming CEO, focusing on high-growth and high-margin retail services [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year outlook for fiscal year 2023, citing strong performance in the third quarter [10] - The company anticipates continued strong demand and pricing increases, expecting to end the year toward the high end of the same-store sales guidance range [47] - Management noted that while there are challenges with franchise unit openings due to permitting and supply constraints, the long-term growth outlook remains positive [21][86] Other Important Information - The company is reiterating its target leverage ratio of 2.5x to 3.5x EBITDA, with cash flow from operations increasing to approximately $250 million [25] - The company expects to see continued improvements in gross profit and SG&A leverage as it expands its footprint [50] Q&A Session Summary Question: On same-store sales growth and normalization - Management indicated that the strongest driver of transactions is the growth in the customer base, with expectations for continued strong performance in Q4 [34][36] Question: On franchise and company-owned mix - The focus is on growing the franchise base faster to achieve the target of 3,500 units, with no specific goal for the percentage of franchise versus company stores [38][41] Question: On fourth quarter same-store sales outlook - Management expects to guide to the high end of the same-store sales range, with a similar balance between transactions and ticket growth as seen in Q3 [47] Question: On cash flow from discontinued operations - The outflow was primarily related to taxes paid on the sale of Global Products, with some additional state and local taxes expected [64][65] Question: On normal volume growth rates - Management noted that mature stores see slightly lower same-store sales growth compared to new stores, with the lubricant industry growing at about 100 basis points annually [66][68]