Valvoline Inc. Q1 FY2026 earnings call

Lori Flees thanked team members and franchise partners for execution. System-wide store sales and net sales had double-digit increase. Same-store sales grew 13.8% on two-year stack, ticket was major comp driver. Network growth: 162 stores from Breeze transaction, added 38 net new stores outside Breeze. Customer base growing, marketing innovated with college sports inspiration. John Kevin Willis discussed financial results: net sales growth, gross margin, SG&A, adjusted EBITDA, EPS, operating and free cash flows, leverage ratio

Top-line highlights: Net sales were $462 million, up 11% reported and 15% adjusted for refranchising impact last year. System-wide same-store sales grew 13.8% on a two-year stack, with ticket contributing majority of comp, net price and premiumization as largest drivers. Franchise stores had slightly higher same-store sales than system average. Adjusted EBITDA margin increased 60 basis points to 25.4%. Gross margin rate 37.4%, up 50 basis points year over year, driven by labor and product cost leverage offset by other service delivery cost increases

Feels confident in delivering on fiscal 2026 guidance. Breeze stores expected to add about $160 million top line and $31 million EBITDA for ten months in fiscal 2026. Expect pretax interest expense to increase by ~$33 million in fiscal 2026 vs 2025. Aim to get leverage ratio back down to 2.5 times to resume share repurchase activity

Material weakness in internal controls related to IT general controls and business processes related controls still underway. Breeze stores being immature may have negative impact on overall margin, expected to be about 100 basis points of EBITDA margin impact. Macro affordability concerns could potentially impact consumer spending, but Valvoline's nondiscretionary business and customer trust may mitigate some risks

Q: Mark Jordan asked about same-store sales impact of new brakes revenue and mobile channel revenue.

A: Mobile channel relatively small, around 20 basis points impact on comp.

Q: Mark Jordan asked about franchise store growth pipeline.

A: Pipeline strong both company and franchise, franchise partners opened nine units in January.

Q: Skyler Tennant asked about sales complexion and Breeze focus.

A: Sales growth balanced, Breeze represents less than 10% of financial commitments for FY 2026.

Q: Max Bracklenko asked about Breeze store conversions and financial impact.

A: Integration underway, Breeze stores expected to add $160M top line and $31M EBITDA for ten months, pretax interest expense ~$33M, $0.20 per share EPS impact.

Q: David Bellinger asked about affordability and internal controls material weakness.

A: Valvoline's business benefits from aging car park and customer education, internal controls material weakness work underway but progress made.

Q: Steven Zaccone asked about gross margin and Breeze impact.

A: Gross margin driven by labor and product cost, Breeze stores have negative margin impact expected 100 basis points on EBITDA.

Q: Scott Stember asked about winter storm tailwinds and store closures.

A: Storms drive battery and wiper replacements, wait for weather to pass then ramp up service.

Q: Steve Chimas asked about deleveraging and ad fund.

A: Continue to monitor deleveraging, aim to resume share repurchases when leverage back to 2.5 times, national ad fund potential driven by network growth and efficiency.

Q: Thomas Wendler asked about refranchising impact and transfer portal.

A: Small refranchising transfers not material, transfer portal had strong creative engagement.

Q: Sarah asked about technology initiatives and advertising.

A: Invested in CRM, SAP, HRIS, moved customer data to cloud, marketing has life cycle management and optimized customer acquisition