Q4 2024 Valvoline Inc Earnings Call
My name is Lydia and I'll be your operator today.
Off the presentation, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do. So by pressing star, followed by 1 on your telephone keypad.
I'll now hand you over.
Go to Elizabeth Clevenger with investor relations to begin. Please go ahead.
Thank you. Good morning and welcome to babbling. Fourth quarter fiscal 2024 conference call and webcast this morning. Valy released results for the fourth quarter and fiscal year ended, September 30th 2024
Function with that earnings release. A copy of which is available on our investor relations website at investors.
This presentation should be viewed in conjunction.
Please note that these results are preliminary.
Until we file our form 10K with the Securities and Exchange Commission.
On this morning's call is Lori, please our president and CEO and Mary Maxwell Burger are CFO.
As shown on slide 2. Any of our remarks today that are not statements of historical fact are forward-looking statements
People are looking statements are based on current assumptions as of the date of this presentation and are subject to certain risk. And uncertainties that may cause actual results to differ materially from such.
Statements.
That Wayne assumes no obligation to update any forward-looking statements, unless required by law.
In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis. Unless otherwise noted
Ual non-operational or restructuring in nature.
non-cap results are adjusted for key items which are in
We believe this approach enhances the understanding of our ongoing business.
A Reconciliation of our gaap to adjust.
non-GAAP results in a discussion of Management's use of non-GAAP and key business measures is included in the presentation. Appendix.
The information provided is used by our management and may not be comparable to similar, measures used by other companies.
And the former Global product segment is classified. As discontinued operations for the purposes of gaap reporting with that. I will turn it over to Lori.
As a reminder, the retail service is business represents the company's continuing operations.
Thanks Elizabeth and good morning everyone. Thank you for joining us.
On today's call, we'll cover our financial results for the quarter and fiscal year, provide a progress update on our strategic priorities and give guidance for fiscal year 2025.
Let me start with a few key messages first.
We delivered compelling growth and results in fiscal 2024 that were largely in line with our expectations.
Our performance is driven by a market-leading
Position, an important competitive advantages, including a quality and well-recognized brand.
Well, capitalized franchisee partners.
Operational excellence. Proprietary, technology. And marketing expertise.
To deliver strong and durable profit growth fueled by a compounding of same store, sales growth, and new store Editions.
A robust and differentiated business model positions us.
A strong Capital discipline focused on growth Investments That generate High returns a commitment to a healthy balance sheet and consistent share rep.
For Value creation is supported.
Purchases to return excess cash to our shareholders.
Let's look at some key highlights for fiscal year, 2024 on slide 4.
Systemwide store sales were 3.1 billion. Dollars a 12%, increase over the prior year.
We also delivered our 18th consecutive year of systemwide, same store, sales growth with 6.7% growth for the year.
Strong pace and we ended the year with 2010 stores.
the network continued to grow at a
From a profit perspective, adjusted ebitda was up, 17%.
To 443 million and adjusted ebit. Down margin improved, 100 basis points to 27.3%.
This year, we completed over 28 million customer transactions across the network.
Overall, invest customer service by Forbes. As we continue to focus on delivering a quick easy. Trusted experience to our guests.
In October, we were pleased to be ranked number 8.
I'd like to thank our team of over 11,000 and our strong franchise partners for all the work that went into driving these results.
Slide 5 shows our performance overtime on key metrics.
Sensor IPO. In 2016. We have seen strong and stable growth in new stores. Systemwide same store sales and profit.
sets us apart within our category and within Retail Services overall
Our growth in financial performance. As a peer play retail service provider,
Turning to slide, 6 will take a look at our fy24 results.
Compared to our fy24 guidance.
Net revenues and same store sales came in just below. The midpoint of the guidance range.
Adjusted ebitda adjusted EPs and store editions all came in at or just above the midpoint of the range.
Capital expenditures were modestly above the range, driven by the timing of certain payments related to capex versus what we had planned.
Our.
Overall, we're pleased.
with our fiscal 2024 results and the continued growth of our business
Now, I'd like to provide an update on the progress we've made on our strategy.
Ating Network growth and targeting customer and service expansion.
We remain committed to our 3, strategic priorities of driving full potential in the existing business. Accelerate
In the near and longer term.
Actions across these 3 areas will enable us to deliver Financial growth. Both
On slide 9, we'll start with a look at the progress. We've made in driving the full potential in our Core Business.
About 20% of the customers, we serve are new.
And the majority come from outside the Quick Lube Channel.
Convenience and speed are the main.
Differentiators, we offer to these new customers.
To be key differentiators and reasons. Why we have high customer loyalty.
The remaining 80% of customers, we serve are returning our brand which stands for quality and Trust combined with our best-in-class. Customer experience Network scale and the Investments. We're making in marketing and Technology continue.
Our store is typically take about 3 to 5 years to ramp to maturity.
We continued to increase vehicle serve per day. Each year that a store is open.
And our mature stores continue to grow their Top Line while improving margins with a Topline growth, and better cost management.
Lift to profit as these stores mature.
With a significant portion of our stores being immature, we expect a meaningful.
But additional, I bet the with the maturing of this immature store base.
Taking into account are reranch, we would expect to add about 70 million.
the strength of our brand increasing scale and operational excellence continue to
To drive the full potential of the Core Business.
Now, I'd like to talk about accelerating Network growth. We closed the year with strong delivery of 49, new stores in Q4, bringing our total to 158 new stores for the year.
As we close fiscal.
23. We recognize the need to improve the consistency of delivery of the new store Editions.
Together through our franchise Development, Council to share experiences and best practice, which is driving process improvements for both.
The company and franchise teams continue to work together.
we also improved our
Pipeline visibility as we increase the number of new stores that are ground up additions.
In fiscal year, 2024 over 100 of the new store editions were Ground UPS.
Locations.
This is a testament to our real estate analytics capability and our marketing and operational learnings on how to successfully open new.
Our franchisee store growth.
2 years ago, we established a target of reaching 250 new stores per year by 2027 and accelerating.
We've taken significant actions to accelerate our Network on the franchise side.
During the fourth quarter, we completed.
To refrain from transactions, which converted 28 company stores to franchise in the growing markets of Las Vegas in Denver.
As we announced this morning in October, we signed a definitive agreement to reranch, an additional 38 stores in Central and West Texas.
The franchises for these 3 markets have committed to significant development which will drive market share, gains more quickly and deliver long-term.
Term benefits to shareholders as we accelerate the network growth in a more Capital efficient manner.
We welcome several new franchise Partners into our Network. This year, including velocity Auto Care fluid automotive and Yellowstone Investment Group.
Recently joined us with the purchase of stores from a retiring franchisee.
In addition Interstate Auto Care.
All of these Partners have committed to meaningful growth in their respective markets.
We look forward to working with our new franchise partners and continue to have encouraging discussions with additional parties who have expressed interest in joining our Network.
A new stores per year, by fiscal year 2027.
With the new stores, our franchisees have plans or committed to and the ongoing interest. We remain confident in our ability to deliver 250.
We are very pleased with our overall store growth, the momentum building in our franchise Network this year.
Year. Along with the sustained growth of company stores gives us continued confidence in our path to a 3500 Plus store Network.
Let's turn to the third priority of targeting customer and service expansion.
With transactions growing at over a 14% compounded annual growth rate over the last 3 years.
Our Fleet business continues to grow at an attractive pace.
Our focus on business-to business sales.
Across both company and franchise markets is delivering strong growth in new accounts as well as improving activation within those accounts.
Sleep business.
With a large addressable market and Fleet owners looking for a quick easy, trusted way to keep their vehicles productive. We see a long runway for growth in our
On the services side, our franchise and Company stores have seen great success in improving non oil, change Revenue Services.
Penetration this year.
Systemwide we have seen an impressive, 17% compound annual growth rate over the past 3 years.
The investment in our teams best-in-class training and super pro process, execution, allows us to present these services to our guests in an effective way.
Before I turn it over to Mary to discuss our financial results in more detail. I'd like to comment on our recent announcement of Mary's intention to retire.
We start.
Started a comprehensive search to identify a successor that will include both internal and external candidates.
Ship.
We very much appreciate that Mary has agreed to continue to serve as our CFO until a successor is selected and successfully on boards. I want to personally thank Mary for her continuing leadership.
With that, I'll turn it over to Mary.
Thanks Lori.
It's an honor and
a privilege to be part of the Valvoline team.
I'm grateful for the opportunity to work with amazing teammates and franchises and am committed to ensuring a smooth and successful transition.
Now, let's turn to look at our financial performance for Q4 and fiscal year 2024.
On slide 13. We'll start with the Top Line performance.
for the
Fourth quarter, net sales, grew to 436 million. In almost, 12%, increase over the prior year.
4% and 15.4% on a 2-year stack.
Systemwide same store, sales grew 5%.
We saw positive transaction growth despite a 40 basis point impact.
Crowdstrike and the Hurricanes that occurred during the quarter.
For the fiscal year, net sales grew just over 12% to 1.6 billion.
systemwide same store, sales, grew 6.7% and 18.6% on a 2-year stack
for the year ticket.
Of the majority of the cops.
non oil change Revenue, Service penetration was the largest contributor along with a balanced contribution from net price and
Premiumization.
I'd also like to call out that we intend to update our approach to determining same store sales, beginning in fiscal 2025 to be more consistent with common retail practices.
In operation within the system.
With the updated approach stores will enter the comp at the beginning of the month after 12 full months.
For fiscal year 2024, the change would increase the systemwide, same store sales, 40 basis points to 7.
.1%.
Slide 14. Looks at the other drivers of the financial results for the quarter.
Is mix.
For Q4, we saw a 110 basis point increase in year-over-year. Gross margin rate driven by lower product costs and store expenses offset by business.
Adjusting sgna is a percentage of sales is flat year-over-year.
Basis points.
We continued to make investments in advertising and Technology.
Overall, adjusted epidamn margin increased 50, basis points over prior year, driven by the improvements at the gross margin line.
At the financial drivers for the full fiscal year.
Turning to the next slide will take a look.
Our adjusted ebit da margin of 27.3% is 100 basis, point improvement over prior year.
We've been pleased with the progress, we're making and scaling the business and managing costs which are driving benefit to our operating margin rates.
By modestly, increased our expenses. Due primarily to the growth of the immature base
Gross margin increased 50 basis points to 38.2% driven by the labor efficiency. We saw in the front half of the year and lower product costs partially offset.
To look at overall profitability.
In fiscal, 2024 adjusted, net income increased 7% to 26 million.
on slide 16, we'll take
Driven by operating.
Income growth of 16% partially offset by higher adjusted. Net interest, expense of 27 million due to utilizing cash for share buyback versus prior year interest income generation
An increase of 17% fueled by Topline growth in margin expansion.
We saw record adjusted ebitda of 443 million.
$1.57 per share.
Adjusted EPS increased 33% to a.
From both the growth in the overall business and lower share comp.
Turning to slide.
17. We'll look at the balance sheet and cash position.
We ended fiscal 24 with 1 billion of net debt.
During the year, we reduced our net leverage ratio to 3.4 times adjusted ebitda on a rating agency, adjusted basis at the end of the year.
property activities were 283 million which is 70 million lower than the prior year which had the 1-time benefit from establishing the payment terms for the
full year, cash flows from
Buy agreement with babbling, Global operations.
Sherry purchases, totaled, 15 million and 227 million for the quarter and full year respectively.
As a reminder, we reported a material weakness in the second quarter of fiscal. 2024, primarily related,
To it, General controls.
What we have made significant progress in our remediation efforts, there is still more work to be done.
With that, I will turn it over.
To Lori to summarize and provide our outlook for fiscal year 2025.
Thank you, Mary.
Valvoline delivered compelling growth in financial results. Demonstrating the attractiveness of our customer value proposition and the robustness of our business model.
Accelerator Network growth.
We're pleased with the progress. We're making to Accel.
Adding 158 new stores and fiscal year 2024, The Reef franchising transactions and welcoming new.
Franchise Partners will all increase our growth momentum.
Izing efforts to demonstrate the underlying growth of the business.
We are well positioned to deliver strong and durable growth in fiscal year 2025. So let's take a look at our guidance for the upcoming year on slide 19. We've laid out our Outlook and have provided additional information on the impact of the refra.
We expect same store sales, growth 5 to 7%.
And overall Network growth of 160 to 185 new stores.
On this slide adjusting for this impact. We expect the underlying business to deliver Topline growth of 10 to 14%.
because the stores included in the reef franchising, transactions contributed approximately 100 million in revenue and 24 million in adjusted ebitda for fiscal year, 2024, we've shown the impact as proforma
And adjusted ebit data grow to 450 million, to 470 million.
This ebit dog, growth includes technology modernization and talent Investments necessary to scale the business to the next level and deliver profitable growth into the future.
Similar to Prior years. We would anticipate approximately 40 to 45% of adjusted ebitda dollars to come in the front half of the year.
based on the typical seasonality of our business, along with the timing of certain expenses such as our annual store meeting expense, which occurred during the first quarter,
due to the lapping of the pricing and nocr actions. We took in fiscal 2024
Canes in September. We do expect a higher comp in the first quarter of fiscal year 2025 compared with other quarters and it is possible.
Combined, with some volume, push from the hurricane.
We experience a quarter below the provided range.
The same store, sales guidance were providing is for a full year result.
Our fiscal year, 2025 Guidance, reinforces the underlying strength in trajectory of our business.
Financial results and performance, within our industry with that. I'll turn it over to Elizabeth to begin the Q&A.
We're excited to continue to deliver best-in-class.
Thanks Lori.
Before we start the Q&A, I want to remind everyone to limit your question to 1 and a follow-up so that we can get to everyone on the line.
Please open the line.
Thank you, Elizabeth.
Please, press star, followed by the number 1. If you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak.
Our last question comes from David Bellinger with meizuo.
Your line is open.
Hey, good morning, thanks for the question. Uh, just focus.
On Q4 first cops were getting a little light this quarter. Maybe they were higher if we back out some of the external factors but bigger picture, how should we think about the 6 to 9% longer term comp sales algorithm you just mentioned you might have a quarter below 5% for next year. So how do we Square all
That together. And
Just give us more confidence in the 6 to 9 going forward.
Yeah, so David, I'll start with your comment on fourth quarter.
prompts, um, we did, in fact, see some impact in the quarter first in July, from the crowd strike event, that we mentioned in our last earnings call, and then in, um, excuse me, in September, uh, toward the end of the month, we saw, uh, impact from the hurricanes,
uh specifically, um impacting
Some of our franchises um, much more significantly than it did our company stores as the markets in the southeast.
uh, were primarily driven by those uh,
Ed by those hurricanes. So uh you'll see some of the differences between company uh store performance and in franchise store performance in the quarter. Um that explain uh you know a portion of that gaap. Um we do expect uh that in the first quarter of fiscal 25. We're going to regain
uh, some of that business typically, when we see whether events,
uh, we typically see that, uh, push out and, uh, we're able to regain, um,
the sales from the
and then, in terms of the full year, uh, we're expecting, uh, to continue to see um, uh ticket be The Driver uh, of
Our first order in fiscal 25, uh, to to demonstrate strong, uh, uh, comps uh, over.
Uh, same for sales guide and hope to provide an update in the near future. There are many unknowns related to the change in the political Administration that
Majority of, um, the same store sales growth, uh, with transactions contributing nicely, but uh, still uh, not as balanced as we'd like to see them over the longer term. Uh, Lori, do you want to comment about uh, the the longer term Outlook income? Sure. Happy to. So, we we continue to evaluate our longer term
Trying to factor in. And until uh, we start to see in the first half of the year. How some of the actions that were talked about during the election come to fruition, I think we'll have more confidence in a in a guide Beyond fiscal year 2025 you know just to give context there's there's obviously both tailwind and
Headwinds, that could come and uh, there's uncertainty around the magnitude of those on the Tailwind side, obviously, a lower corporate tax rate would be a benefit.
For EPS growth. Um, and then more gradual shift to EVS over the longer term, obviously benefits Us in terms of the
Um but also miles driven could go up uh just given some of the uh potential Administration actions on the headwind side. Um obviously
Timing of Investments. We make in developing the services required uh to maintain a customer's vehicles. Um in an electrified car park.
Paris. Um, depending on the magnitude or breathes and magnitude and breathe, and timing, um, would have an impact on our cogs and we would have to figure out ways that we would pass those through to customers or mitigate those through um, our own efficiency actions. Uh, and then there's just a whether or not the macro
so, uh, consumer environment whether inflation subsides or increases and how that um, affects competitive pressure so,
Um we typically see in other Automotive players who are seeing their Core Business, have deferral or trade down. Uh they they tend to
Then, and we're seeing it. Now, start to promote oil changes as a way to drive some traffic into their service centers. Um, and so that environment, if it worsens, um, obviously, well, not impact our retention of customers, but could impact our ability to attract customers out of that channel and into the quick Loop Channel.
And also, then the labor impact of mass deportation and how broad that is and how quickly that is and and how it impacts the lower level wage. Um,
Environment.
Of that, and the timing of our fiscal year. But beyond FY 25, I think it's still a little early to provide a forward guide, but we do, we do hope to do that.
Uh for retail. So there are a number of unknowns that were assessing and watching and making sure that we're prepared to mitigate. But those things um, I think we're we have. Those fact, those potential upsides and downsides factored in the guidance for FY, 25. Given the timing.
um, as soon as some of that gets more clear,
Got it, appreciate all those details. Um, and this is my second question.
Looks like adjusted e but does up about 10% at the midpoint revenues up about 12. So could you just help us unpack that and then in what areas of the business are you expecting?
if we back out the reffing piece for 2025 that implies adjusted ebit uh is growing at a lesser pace and total revenues
Some type of margin compression. I think you mentioned Tech modernization and talent, uh, maybe just give us more details on those could be helpful. Thank you.
Certain environment.
Yeah, David so consistent with what Lori talked about in terms of the guidance. We're providing for 25. Um, we we are, uh, taking into account a more uncertain.
Overall, um, that includes, you know, uncertainty around our underlying cost environment. Uh, we did recently receive a notification
From 1 of our uh uh, used oil, uh, collection providers, uh, suggesting that uh, their uh collection, uh, reimbursement payments to us, will go down substantially and we've yet to fully understand how that will fully play out in terms of the underlying product cost. Uh,
Also, you know, closely watching the inflationary environment. Um, you know, labor is our
largest component of our
of goods sold and
uh, that inflationary and labor and
Environment could significantly impact us over time. So we're we're we're taking what I think is a reasonable and
guidance in light of some of those uncertainties.
Around technology.
are making Investments, um, in um, um, our GNA expenses um, specifically
Talent. Uh, we do.
Um, have been, um, um, in place since, uh, prior to the IPO. Um, and you know, we did update uh,
Require system modernization, uh, the systems both financial and our hris systems.
And replace the irr. Uh, the financial Erp system in um, 23. And we're working on uh the the roll out of the updated hris.
System, and that's requiring Investments and, um, you know, cloud-based, uh, systems. Um,
That uh, will allow us.
to really,
Business from where we are today uh, to the 3500 Plus stores that we're focused on in the future. Uh, and then we're very focused on talent and, um, making certain we have the right talent and the right places, uh, to drive the business, um, going forward, longer term. So, in some ways, 25 is really kind of a
Reset year with some of those Investments that we're making. Um, in order for us to scale.
Uh, that continues.
Opportunity that we still strongly believe uh is in the business.
Growth opport.
the the systems that we have in place prior to the implementations, we've either done on the financial system side, or we'll do on the HR side, our systems that were
Yeah, I just add the the infrastructure around Erp and hrif.
in place within Ashlyn when uh when we spun out and and those are um not fit for retail, they also are
um, going end of life and we have partial year uh, fees for those that were in last year's Financial, but not full year and we
Also have the development cost of implementing those systems, which will start uh, to, to come through and depreciation. So those are the, the sign most significant increases in GNA investment that we're doing. And then I think a few areas of talent investment specifically around the things that are franchisees are
Asking us to invest in as they're committing uh to more unit growth. And uh we want to make sure that we have the right infra support and talent in place, um, to ensure that they can do that successfully and Lori just a, a, a clarification on my comments. I did mention that we had started the Erp in 23. We
We actually Implement in calendar 23, we actually went live with that system in in January of 24 and our our second quarter of last facility of of fiscal 24.
um, so I just wanted to clarify that
got it. Thank you both.
Thank you.
And next.
Question comes from Stephen vangeli with City.
Please go ahead. Your line is open.
Hey, great. It's Steve's account from City. Thanks for taking my question. Um, I wanted to follow up on the prior question because I think, can you can you guys hear me?
Yeah, yes.
Okay, great. Sorry.
um, I wanted to follow up on the prior question because
Maybe help us think through.
you know the guide for 5 to 7 seems for sales this year and then the the uncertainty of you know, when you're going to address the algorithm
You know what you view as the market growth rate for the industry, right? And then like the overall ticket versus transaction because we used to have a formula
To get to that 6 to 9% growth. Um, has anything changed there? Because I think, you know, we're all going to kind of come off this call and, you know, it's 5 to 7% the right run rate for the business. Could it be a potentially a little bit lower than that? I guess. Like that's that's where I think we're trying to just understand as we go forward.
Yes.
Steve um, you know, the the 5 for 7 to 7% guide, um relative to, you know, the the 7.1% uh on
On a brief stated basis that we did for, uh, fiscal 24. Um, really the the the biggest difference is, um, more moderate. Net pricing.
Uh, in the comp. Um, you know, we're we're assuming with the more challenging overall environment and at some continuing challenges and the consumer environment.
Transaction growth, we expect to continue to see, uh, strong benefits from premiumization. Uh, we are lapping in the second quarter of 25, action, Suite,
Uh, that will likely not, uh, be as, um, uh, required, to be able to take pricing at the same level, uh, that we have in the past. Um, especially given the historical inflation that we've seen, uh, in in pricing, uh, we do expect to see as I mentioned earlier, uh, uh,
To drive.
Stronger.
Penetration. And so, we think that that will uh, be a little bit more.
Basis as well.
With our competitive advantages, we're going to outperform the industry and deliver strong, absolute and relative same store sales for retail. And when you look at our industry, overall,
Or anything that you'd add to that. Sure. Steve I think, um, what I would step back and and reflect on is that we fully expect that.
It's been trending 3 to 4% in the postcovid environment. Um, and and we have outperformed that, when you look at, um, the inflation,
Levels. You know when you go back to 2022, when we set the algorithm we had significant, uh double digit, same store sales comps which came
From pricing pass through of inflationary cost.
And so I think when you look at a different labor and sorry, a different macro
And inflationary environment. Um, we're not as confident in that, the inflationary pass throughs are going to be um, included to the extent. They were back in 22 and even 23. Um, I think when you do that combined with the competitiveness, we're seeing from outside the Quick Lube segment and that could be
Short-lived. But at least it's what we're seeing now. Um it ends up having a factor in the ability to drive the new customer acquisition.
Because as you'll note from the presentation significant part of our new customer acquisition comes from channels outside the quick Loop space 75%. Um, and as those channels are trying to keep the traffic uh, and discount or bundle provide bundled pricing on preventive maintenance, it may
Is it harder for us, within a, a reasonable cost to acquire those customers to try our Channel? Once they try our Channel, see the the quality?
And the convenience, uh, we we have years and years of history, that would suggest once they shift they stay. Um, and so it's just really
Factoring in those 2, things 1 inflationary uh cost pass through um and 2 just a little bit more intensifying of the competitive environment and that impact on new customer acquisition.
Okay. Okay. That's um, that's helpful details.
And then, um, the follow-up I had, is just on the decision to reranch some stores. You know, what's the decision criteria to potentially do more of these as we go over the course of the year? Um, and then even, you know, on a multi-year basis just, you know, why does this make sense for you? Like, you know, how do you think about potential?
Additional ones in the future.
Yes.
Where you want to go? I'll I'll start I think strategically we've been very clear that
We have an opportunity to expand our market share, um, and drive a considerable growth. We also, um, in looking at
At the overall markets. There's a lot of markets where we have a franchisee territories that have opportunity to grow.
We have, you know, we've put together the capability of the team to grow our business on the company side, but there's more growth within those.
Um, and then, on the company's side,
Markets. And so we've always said that if we have a well capitalized,
Partner who has the same, you know, has the brand wants to deliver the brands.
Standards and has a focus on people, which drive this business.
and they're willing to commit to significantly higher development of new units in a market than we, otherwise would
Operating if we're going to, uh, sell those to the franchisee, but it's more about the long-term growth in a more Capital efficient way. So while it,
That we would factor that in to an overall transaction. Obviously they have to recognize the value of the stores that we're currently.
it looks, you know, it appears deluded in the short term and the long term, it's very accretive given the capital efficient growth at a higher level, um, and it allows us
To drive more networks, um, sort of completeness which also has an impact on sales, at least as it relates to Fleet customers. So there's a circular
Uh, loop. It's more Capital efficient, it drives more growth, um, and reinforces itself. Mary, is there anything I missed? Uh, the only other thing I would
Lori is, you know, we've done 3 of these transactions. You know, the 2 weeks completed in fourth quarter and the 1 that
Today, uh, that will close relatively soon.
Continue to evaluate. Uh, What, uh, what from a longer term perspective, what's in the best interests of driving longer-term. Shareholder value,
Um, you know, we have a a lot to absorb, uh, with those 3 transactions. So, um, I think that we'll be, uh, monitoring and, uh, insurance that the, uh, the, the, the changes that we've put in place here in just the last 6 months, uh, are going well. And, uh, then we'll
but when you look at the
Partners are given it. It definitely is a creative over the long term. Delivers very attractive, shareholder return. Otherwise, we wouldn't, we wouldn't have entertained them.
the irr on, you know, the return on these transactions over the period of time and commitments that the
Okay, thanks for all the detail and Mary. All the best on your retirement. If this is your last call,
Thank you very much. Oh, it's never last call, it'll say that. Let's see may, or may not be, we'll see.
And Stanley.
Please go ahead.
Our next question comes from Simeon, Gutman with more.
Hi. This is Lauren on for Simeon. Thank you so much for taking our question. Our first question is um, can you just talk a little bit more
About the competitiveness in quick oil changes and separately. As you guys expand are you finding, you know, same opportunities in New Markets versus existing markets. Thank you.
Sure. I think uh as it relates to the overall Market uh the Quick Lube space continues to do again.
20 to 25% of the total oil changes that are done in the do it for me market. So it's still very small percent.
Of the overall Tam and we continue to see the same competitiveness with our other uh quick blue competitors.
Um, so there's not a significant change in the environment. I think, in, in the Q3 earnings we talked about some, uh, advertising competitive
Competitive advertising activity. I think some of that has already moderated. So we're we're not seeing the competitiveness within our category.
Um, uh increase by in any material way or in across any geographies, as it relates to the 80 75 to 80% that of oil changes that are done outside of our category or outside of our segments. We, we are seeing pockets of um,
Consistent with history when there's pressure on the consumer and they're trading down, or deferring on other maintenance. Like, for example, tires,
Pockets of promotional tactics uh specific to oil changes or preventative maintenance to drive traffic. And this is not a new. This is
Discounting that's happened. Same with what we saw previously with dealerships. We're not seeing that as such. But um, so I would say the competitive Dynamics are
Um that that those competitors. And again it's all it's a very fragmented base so it's unlikely to be at national scale but you'll see
Significant differences in the competitive landscape within our space. Um, if anything it's the it's the market opportunity outside of quick. Lubes, that we are seeing
Relatively consistent and the Quick Lube space. Um, from a real estate perspective and opportunities for acquisition or new builds, we're not seeing any
Pockets of promotional tactics, um, but it's not new and it's not pervasive or at national scale.
Maybe you're comfortable sharing with us. Thank you.
Okay, got it. That's helpful and I guess our follow-up is just on the refrigerant piece, we're starting to see it. Pick up into 2025. Um is there a percentage franchise mix?
Specifically, on shifting our business more to franchise. We do want to accelerate our franchise growth and I think, you know, we
It's a good question. And, and when we get asked a lot, we we don't have a Target. Um,
Uh, we're very encouraged by both the plans and commitments that we've gotten from our existing franchise Partners as well as.
Still have from parties who would love to join our Network and, and we are entertaining those and looking at White space opportunities to to, you know, to bring on you know.
You know, the the updated commitments and the new commitments that we've got with, the free franchising transactions that we have announced today. Um, and the additional interest that we
Handful of additional partners.
Um, so
In Lori, we did bring on some new partners. And, um, um, recently in
In in several markets, including, uh, 1 important new partner, uh, who acquired a, a franchise business from a retiring franchisee. Um, and with
became a
a agreement in that territory as well.
Great. Thank you.
Thank you. Our next question. Comes from Justin clever with bed. Please. Go ahead.
Good morning, everyone. Thanks for taking the questions. First 1, I wanted to ask just about non oil, change revenue and and where you finished,
24 at, in terms of percentage of systemwide sales and and then how much variability is there across the system?
From a penetration standpoint. What what tends to drive that variability?
Um, obviously Mary mentioned that none will change Revenue was our biggest contributor uh to ticket in 24 um and and we ended the year.
It's a great question.
you know, I think the we started some of our efforts there, uh, some
S have largely, uh, stayed. It really comes down, and just to be clear, the Improvement in Nano, change Revenue dollars, uh, you know, per trans,
Some significant efforts there in the second quarter of 24. And
Action. It's coming from all services. It's not just coming for from 1 or 2 board and we go back.
to you know, the fact that we re-certified everyone on our super pro process and made sure that they understood um, what this
Services were with the in the process and how to explain those to guests but also were trained in conducting them. Um we also made some efforts to increase the speed of service.
Because we know if we have the the core service sorry of an oil change faster, then the customer is more likely to to take an additional service.
Because they have the time and it's all around con, convenience and speed. So when we look at, when we look at the year-over-year it's across
The board. Now we still look at Courtice our stores and there is significant differences between Stores. Um, and some of that comes down to the tenure of the staff in the store. Um, if you have a younger staff, they're less confident, less educated both in.
Aning the service to the guests but also in completing the service as well as just the speed of their of their performance.
And so there are significance.
Significant differences between the top quartile and the bottom quartile. I think what we're pleased by is all quartiles improved year-over-year in 2024 and you know as we start the year, the work that we you know, we began in January and February of the calendar year continued uh into this new fiscal year. So we're
Very encouraged.
and that we address any barriers um, in serving their guests,
Very helpful, thank you, Lori, for that. That caller, and then, unrelated follow-up. But Mary I, I just wanted to, uh, to get some more color on the comment regarding the decline and
In collection reimbursement payments for waste oil. It it seems like at least from my perspective that safety cleans decision to make this change was, is being driven by decline in base oil which I'd assume would be beneficial to your
Lubricant cost, but it sounds like you expect these changes.
To be a net negative to product cost. So just wanted to clarify that.
Comes from Mike Harrison with Seaport Global Security. Please go ahead.
You know, not necessarily it was just really a cautionary, uh, point that we still don't have full visibility yet as to how the overall product costs will be impacted. So we're still working on that. Um and um you know we'll have an update for you at the end of end of the quarter historically collection. Uh Revenue has always been uh a modest hedge to overall, you know, product costs. So as product costs went up, we saw benefits from collection revenues and as products cost came down. We we, we saw, you know a a related decline in collection revenues. And um it's not clear to us that this change from um uh that we've received uh will follow that same Cadence as historical over time over the longer term time. I expect it will straight
Hi, good morning.
Um, morning to follow up.
You just follow up on the the discussion that you just uh we're going through on Lower product costs, helping you in q.
Written out there. The the real question is shorter term uh well they're what will be impact be but uh you're right um longer term.
for, can you talk a little bit about gross margin expectations into next year and and maybe some of the puts and takes as we're thinking about base oil,
uh, we should
Be benefit on the product cost. And in fact, in fourth quarter we did see benefit from lower product cost benefit, um our margins in the fourth quarter. So um um as we get uh more information and have a clear uh outlook on it we certainly will provide uh investors with that information.
Why agreement um and obviously there's a a leverage and and kind of labor cost issue. That could be affecting your gross margin. So uh,
I mean.
At the end of the day, do you expect gross margin to be up next year or or kind of flat year over year?
To see, um, shorter term here, the impact of some, of the, um, changes in the waste oil collection relative to, uh, product costs. I do, um, as I mentioned,
Yeah, when in, in our guide, my we're assuming it to be relatively flat year over year. Um, and uh, we we really, as I said before, um, our way
All right, great. Thank you, both.
Thank you. Our next question.
Laws. The the waste oil collection, reimbursement. Uh, I don't know if anything is is changing or evolving in your agreement with the ramco around the
Did see some benefit from lower product costs in the fourth quarter, um, and uh, we'll see how that uh flows through uh, into um, the first part of the year. Um, as we are entering into our new fiscal year, um, we do think that there will continue to be some, uh, labor
Cost increases although we think the labor inflation will moderate uh from where it has been uh over the last couple years.
uh, we will see labor inflation, uh, that will impact our overall cost of goods, um, and then we expect to see, uh, you know, some leverage from the
Uh, but we still think that
Continuing scale that we have in the business, um, and then I had when we'll be just the number of immature stores that are in the overall base.
Ramp um, you know, to maturity, they generally have lower 4-all margins uh during that ramp period Lori. Anything you'd add to that. Yeah, I mean, I would just say that um,
um, and so as those stores,
Mike, our teams did an excellent job this year managing their labor, um, particularly managing in and around the storms and the Hurricanes to not overspend when customer demand or traffic was down. And then be uh, ready with the right Staffing when they came back after those times,
And, and will, I think our teams are set up well, to continue to manage their labor. Well, I do think we like every retailer has to counter the
The wage increases the minimum wage increases and just the competitive environment for talent. Um, now some areas of our
Of our business have more wage pressure than others where uh, the states have enacted, some step-ups and minimum wage. And all of that is is factored.
In and and part of the reason why we're we don't expect to have significant leverage on the gross margin here. This year, we are implementing some technology and tools, um, in order to mitigate, uh, continued to mitigate the increases in labor costs. Um, and so some of that is factored into the Investments that we need to.
but we'll see the benefit of those investments in later in later years, you know, with, with this being the year of implementation, it'll be tough to see a lot of the, the
Short term.
but it looks like about 66 stores uh now and and a value of uh uh or 24 million dollars worth of be, but uh, you mentioned that you
All right, that makes sense. Um, and then uh, wanted to ask on the, the refrigerating store
To make sure you're getting the value for the stores that you're selling to these franchises. So what do the proceeds from those transactions look like?
You know, what kind of multiple do you expect to get on that 24 million of IBA?
that precedes um from the sale are disclosed in table, 3 to the press release mic, uh the statement of cash flows um, in
So, um, the stores that we sold in the fourth quarter.
In does show.
Uh, the 71 million from the disposition of sort of, of, of businesses that we sold in the quarter. Uh, we haven't disclosed, uh, the uh, proceeds from the transaction.
We announced today, we, we did see a substantial gain on sale related to the businesses that we sold in the quarter that gain was in excess of $40 million pre-tax. Um, and, um, you'll also see that we've treated that as in a key item or an adjustment to ebit, uh, because of its non non-recurring nature.
Um and that'll be consistent. Uh, once the transaction uh that we announced today it closes as well. Uh where we also see the expect to see a a substantial gain
uh so um I think that we've um, done well in terms of uh the positioning of those stores um, in terms of the sale,
The most importantly, is the focus on the long-term, um, rate of return that we expect to see with the faster growth.
In.
Long term.
be about a million dollar even though I had wind in the quarter, so 8 8 million a year so you got less than
every franchising will provide in order to, uh, really, uh, ensure that, um, the the business is well positioned for
Okay. And the the 71 million for for the stores, you sold this quarter. I believe you had said that that was going to be
Less than 10 times closer to 9 times.
Yeah, we aren't going to disclose the the multiple that we, we had on those stores. Um, there there was some modest um, benefit in that that
Ito business.
cash flow related to the disposition of the Russian business that we, we kept in, uh, the the retail business. When we sold the
This is on the long-term returns that the refrigerating will provide, uh, uh, in terms of value creation.
Um, and that that had a very modest, uh, net proceeds as well. Um, but overall, um, you know, I, again our Focus.
All right. Thank you very much.
Our next question comes from Tom Wendler, with Steven.
Satan.
Please go ahead, your line.
um, with the new way of looking at maturing stores,
Hey, good morning everyone. Um most of my questions have been answered but maybe going back to same store sales comps.
uh, can you give us an idea of the, the impact it had on fiscal year 2025 Outlook?
Yeah, we think the impact on 25 Outlook. We did mention that on 24, the impact was about 40 basis points, uh, between the old method and the new method and importantly. Um, that impact
Perspective. So, in fiscal 25, we expect that impact to be 50 plus basis points.
starts smaller in the first quarter of the year and grows by quarter over the over the year, from a Cadence.
Touching on repurchases 15 million in the fourth quarter. What kind of repurchase activity are you expecting? As you as you look in the fiscal year 2 5.
Perfect, thank you. And then uh, maybe just
Excited to repurchase activity. Um, so if you look um, in terms of our guidance tables,
yeah, we we actually
um, you'll see that we guided to a um,
Arrange. Let me make sure I say it correctly. We we guided to uh, total share repurchase activity of 40 to 70 million. Now, of course,
conditions, um, and, uh, you know, also subject to, um, you know, whether or not we identify any other significant growth opportunity,
That is subject to Market.
unities during the year that we think, uh, would provide a, a better opportunity for that Capital, but we do think that, um, is, um, being able to
Uh, distribute a significant component of our free cash flow to shareholders during the year, uh, is a significant part of our long-term value creation for shareholders.
Perfect. Thank you for answering my questions and great quarter.
Thank you. Thank you.
Thank you. Our next question comes from Peter Keith with Piper Sandler.
Please go ahead.
Looking at the the ebit, uh, guidance and trying to adjust out the refrigerant and get to roughly about 10%. He did that growth at the midpoint and it seems like with the, the Q&A, your care.
Hey uh, thank you. Good morning. Um,
Characterizing FY 25 as an investment year. Um, so the heart of the question is, could you maybe frame up how much pressure the Investments are causing on the
That guy like is there a certain like percentage taken out of ebit growth year on year?
yes, I um, you know we we didn't specifically
We call that out, uh, Peter. Um, but I would tell you that uh, we certainly would expect uh, to see um um, growth in our uh, GNA costs that would likely cause some modesty leverage uh not significant. Uh but but certainly modesty leverage uh, that would um,
Uh, put some pressure on our overall, Eva diet growth for the year.
Yes, yes. Yep.
We had in 240, uh, or it, it's in material.
Okay, and that's that's people and Technology.
I think the Peter, the point is, we, we marketing will continue at roughly the same Pace that
It's really just around the GNA investment.
and then assuming that gross margin holds relatively flat,
and then, um,
You had did flag some potential concern with tariffs. Um, I I wasn't thinking of you guys as tariff exposed maybe you could frame up what you're
Irr is I guess, is there a particular countries where you uh have exposure? Uh is it, is it direct import exposure or is it more uh indirect in your suppliers that pass?
on pricing, just help us understand how that could uh have some negative impact potentially
yeah, happy to um,
Impact is indirect or our suppliers. If you look at, uh, lubricant pricing, most of the base oils are actually imported just given the spec, uh,
most of our
to meet the standards of our, Our Brands,
um, in terms of the Valvoline Global products brands
Odd tariffs across, you know, more than just China or just China as it relates to China. We do have some of our ancillary Services uh, like some of our filters.
And so it just depends on whether or not there's Broad.
And our wipers do are sourced from China. So when you look at our cogs line, obviously labor, being the highest, we do, have a reasonable amount,
In cogs for materials that we use in our services. And that's the piece that um, that we could see some pressure. Now we're already looking at ways.
To that. We could mitigate some of that in the short term um, as it relates to filters and wipers you know. Can we can we bring more of those in now before any tariff or
Connected. Um, but longer term, there could be an impact.
Source for those who are still indirect through suppliers.
As it relates.
My preserve. Those are uh, Direct
Indirect through suppliers that actually do our distribution.
Very good. Okay, thanks so much.
yeah, obviously Peter, we're we've got contracts in place with some of those suppliers but we're
Looking to.
We're looking at alternative sources to mitigate some of that as well. There's just a lot of work underway. Um,
but it's all the things that we're
Looking at that, we need to be agile in order to protect margin.
Very good. Thank you.
Our next question comes from Bret. Jordan with Jeffrey's please go ahead.
Good morning.
about, um,
I guess.
Premiumization in the comp in the quarter.
The, the comp the mix, could you give us more caller on? Just really what was car count? What was same service price and what was
Yeah, we we we don't get that specific around the comp, uh, Brett. But
Um, you know, I would tell you that uh, the majority of uh the comp was driven by ticket uh, in the quarter and um, the largest contributor to that ticket.
It was uh non oil change Revenue penetration um followed by uh combination of net pricing and premiumization. So uh
You know, we we continue to see um, strong contributions on all 3 of those lines.
Uh, with um, Nono change Revenue.
Uh, leading the contribution.
Administration.
Uh, we did see. Um,
Um, you know, transaction growth during the quarter, but it was a more modest component of the the comp.
And I think, um, the transaction growth across our quarters was true even with the fourth quarter, which was impacted by crowdstrike and the hurricane, so that would have impacted transactions.
Oil change Cycles, getting extended at all, or the ability to sell premiumization, I guess, sequentially.
What are you seeing from a consumer? Um, Trend, I guess. Are you seeing deferral or same customer?
optimistic, as we get into the end of
You know, pressured as the years gone on or are you seeing people getting more?
the yeah, I think, you know, our business and the demand for preventive maintenance has historically and continued
To be resilient.
Um, we do not see our customers trading down or deferring the service.
Um, I think, in the last quarter, we talked about how lower income had a lower penetration rate of services, um, added to an oil change.
The penetration or or the non oil, change Revenue dollars per transaction. Went up year-over-year in Q4 at a higher level than it did in Q3.
We haven't seen that get worse. In fact.
We still see differences by income level meaning higher incomes tend to spend more on added Services per transaction than lower house.
Told income quartiles. But overall all quartiles grew and penetration.
so, we're not seeing, um,
Uncertainty affect our active customer base I think where we're looking is. Um the the activity typically helped impacts. Um,
Some of the macro.
And quick. Easy trusted.
Our ability to acquire customers out of other channels. If those customers are value-seeking and they don't understand the value, proposition of a quick Loop,
Great. Thank you.
With Wells Fargo.
Your line is open.
Our next question is from David lamb.
New unit, guidance for 25, is it safe to assume that that's still in beds 100 company operated stores in the balance, being a franchisee. And then, can you also talk about the opening
Hey, good morning and thanks for taking my questions within the 16185.
Throughout the year and a bit more detail.
Side, new units. So, you're right, we would expect within that guide company to be in or around 100, and for franchise to be the balance.
Sure, happy to I think we've we've said, 2 years ago, that we were targeting to get to 100 stores on the companies.
To quarterly openings. Um, obviously we've worked really hard after 2023 to create a little bit more even case.
As it relates.
Quarter to quarter, there's always going to be a higher quarter typically at the end of summer which is our fourth quarter. But in general, um,
We we see it to be a bit more evenly paced across the quarter, both for us and for our franchise Partners. Now, some of that is based on acquisition
Timing and new builds. And I would say you know we've always had good visibility of what's in front of us. I think with the new build number becoming a higher percentage
Of the total it actually allows us to have better visibility over the year. Um and so I do think we're putting in the right support and tools.
um, in order to get to a more consistent delivery of new units by quarter,
Transactions have grown at a 14% kegger over the last 3 years. Curious, if you can provide any additional color around expectations for 2025
Got it, that's helpful. And then on the fleet business,
Um, you know, we have made some investments in our business to business sales team that are you know continuing to pay off for us.
um,
In the last year to year and a half. Um, we have started to take on more of that business to business selling for Regions that are operated by our franchise Partners, as a, an additional service that they can opt into. And part of that is just because they've seen the growth that we've had on the company side. And
Um and how the frequency of visit and the ticket um are attractive relative to an overall consumer. Um, so
We don't really share the specific growth rates that we're included, but we would expect it. Our Fleet business to continue to grow faster than our consumer. Business is growing.
An fy2 and Beyond.
Great. Thank you.
Thank you. And our next question comes from Steve Shemesh with RBC Capital markets.
Your line is open.
Great. Thank you.
Uh appreciate you squeezing me in and and Marielle offer my congratulations as well. Um just wanted to Circle back to Topline. I I know you mentioned you expect 1 Q?
Same store sales to be a bit higher than the rest of the year. Can can you maybe comment on where we're trending quarter to date? And I guess just how much of a benefit you
Hurricane deferral from 4 q into 1 Q. Um might contribute and then just secondly.
Quarter coming in below the full year your guide. I mean, I guess we're we're already seeing the tire and and maintenance shops being a little bit more promotional.
you mentioned the possibility of a
At this point. So it it feels like that's kind of the norm I guess what? What would need to happen to get you to a a a sub 5% in a quarter? Thanks.
Clearly influenced.
Yeah, we're we're pleased. We're the business is trending uh, quarter to date. Uh, you know, we saw a strong October um that
Uh, by the weather pickup.
Uh, early in the month. Um, uh, and as well as comping against.
October last year, I don't know if you recall but then our first quarter call last year, we talked about some marketing weakness, we had
A a weaker.
Pumping up against uh that that you know is is helping us this year.
um,
it's been um, a little choppy. Um,
um, everything in in, you know, as you look at the quarter to date, um, is really, um, uh, trending in line with our expectations of it being, uh,
Recently. But, um,
A strong quarter. Um, so I would tell you that, you know, I certainly expect uh, the comps in the quarter uh to outperform.
What we saw in the quarter last year. Um, so uh, with that, um, um, I turn it over to Lori to get the second part of your question.
yeah, I think um when you look at the promotional activity that you're talking about it really the the
Customers that we can acquire. So if across our Fleet, 80% of the customers, our customers that we've seen before and 20% are new. Um, we obviously
the impact will be to the number of new.
Don't grow our essay, our s, we don't grow our number of stores by 20% when you look year-over-year. So some of that is acquiring customers into our existing
Stores. Um, and they come from other channels and that's where they'll be some potential for pressure. If we see the continued promotional activity,
That he brought in, um, Beyond just the pockets that we're seeing today. And so, that's really the difference around. Um, whether or not we we could go below the guy.
Is really around that, uh, promotional activity that we see in the impact, it has to our new customer acquisition rates.
Relative to what we planned and what we have been experiencing.
you're you're holding price largely so
Okay, just just to clarify. I mean, when when there are promotions in in the environment,
we're, we're anticipating that there's going to be somewhat of a traffic slowdown, but you're still going to get
And we flatter or maybe some positive pricing there.
Yeah, so we hold our pricing but we allow our stores
If a customer that we've served served before it gets an offer and they bring it into the store, we don't match it but we'll do the right thing to keep the customer. Um, and so you could
See a little bit in those areas of competition, a little bit of discount increase, but a maintain a maintaining the traffic now. That's a comment.
With the retention of existing customers. What I'm talking about is the promotional, uh, activities that we do to try to get new.
Customers to try us.
Seeing other promotions, our promotion may not be as attractive and they, they don't know what the experience differences. And so it, it's just, you know, more
um, that perhaps haven't been to a quick glue before or definitely haven't been to a valving before and if they are
For promotional activities, competing for customers that are in that decision window, or in the service need window.
I don't think it's
Market by market dependent.
Got it.
not an increase in discount for new customers but it's more dollars chasing those in the marketplace and that's going to be, you know,
Thank you.
Thank you. We have no.
Further questions in the queue so I'll turn it back over to you. Elizabeth for any closing comments.
Thank you Maria. And thank you all for your time today. This concludes our call.
This concludes our call. Thank you very much for joining. You may now disconnect your line.