Valvoline Q3 2025 Earnings Report

Valvoline EPS Results

• Actual EPS: $0.47
• Consensus EPS: $0.46
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.45

Valvoline Revenue Results

• Actual Revenue: $439.00 million
• Expected Revenue: $436.35 million
• Beat/Miss: Beat by +$2.65 million
• YoY Revenue Growth: +4.20%

Valvoline Announcement Details

• Quarter: Q3 2025
• Date: 8/6/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 6, 2025
• Conference Call Time: 9:00AM ET

Valvoline (NYSE:VVV) Inc. engages in the operation and franchising of vehicle service centers and retail stores in the United States and Canada. The company, through its service centers, provides fluid exchange for motor oil, transmission and differential fluid, and coolant; parts replacement for batteries, filters, wiper blades, and belts; and safety services, such as tire inflation and rotation, bulbs, and safety checks. It offers its services for passenger cars, hybrid and battery electric vehicles, and light and medium duty vehicles. The company was founded in 1866 and is headquartered in Lexington, Kentucky.

Valvoline Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Valvoline delivered system-wide sales up 10% and 12% adjusted EBITDA growth, with same-store sales comps rising 4.9% and 46 new stores added in Q3.
• Positive Sentiment: Gross margin expanded 80 bps to 40.5% driven by labor leverage from enhanced scheduling tools, while SG&A rose due to tech investments but is expected to leverage in fiscal 2026.
• Positive Sentiment: Network growth remains on track with 116 gross store additions YTD and a robust pipeline supporting the 150 new store target for fiscal 2025.
• Neutral Sentiment: Valvoline narrowed full-year same-store sales guidance to 5.8%–6.4% and raised the low end of its adjusted EBITDA outlook based on performance to date.
• Negative Sentiment: The proposed Breeze acquisition faces FTC review, may require divestiture of certain stores, and has uncertain timing for closing in late Q4 or early fiscal 2026.

Presentation

[Operator]

Hello, and welcome, everyone, to the Valvoline's Third Quarter Earnings Conference Call and Webcast. My name is Becky, and I'll be your operator today. I will now hand over to your host, Elizabeth Klavanger with Investor Relations team to begin. Please go ahead.

[Elizabeth Clevinger, Investor Relations at Valvoline]

Thank you. Good morning, and welcome to Valvoline's third quarter fiscal twenty twenty five conference call and webcast. This morning, Valvoline released results for the third quarter ended 06/30/2025. This presentation should be viewed in conjunction with our earnings release, a copy of which is available on our Investor Relations website at investors. Valvoline dot com.

[Elizabeth Clevinger, Investor Relations at Valvoline]

Please note that these results are preliminary until we file our Form 10 Q with the Securities and Exchange Commission. On this morning's call is Lori Fleis, our President and CEO and Kevin Willis, our CFO. As shown on slide two, any of our remarks today that are not statements of historical facts are forward looking statements. These forward looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Viomi assumes no obligation to update any forward looking statements unless required by law.

[Elizabeth Clevinger, Investor Relations at Valvoline]

In this presentation and in our remarks, we will be discussing our results on an adjusted non GAAP basis unless otherwise noted. Non GAAP results are adjusted for key items, which are unusual, nonoperational or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our GAAP to adjusted non GAAP results and a discussion of management's use of non GAAP and key business measures is included in the presentation amendments. The information provided is used by management and may not be comparable to similar measures used by other companies. With that, I will turn it over to Laurie.

[Lori Flees, CEO & Director at Valvoline]

Thanks, Elizabeth, and thank you for joining us today. I'd like to start with a quick look at our third quarter highlights on Slide three. We are pleased to have delivered strong sales, profit and store growth for the third quarter. System wide sales increased 10% to $890,000,000, and adjusted EBITDA increased 12% considering the impacts of refranchising. We delivered good same store sales comps of 4.9%, including an 80 basis point impact for Easter, and we added 46 new stores in the quarter.

[Lori Flees, CEO & Director at Valvoline]

As we continue to drive the full potential of the core business, we benefit from the resiliency of our customer demand. We continue to see no evidence of customers trading down or delay services. In fact, the percentage of customers using our premium products grew both sequentially and year over year across the network. We're pleased to see continued transaction growth for our same store base. We also saw transaction growth in our mature store base for the quarter.

[Lori Flees, CEO & Director at Valvoline]

Our ticket growth was benefited by premiumization, net pricing, and improvements in NOCR service penetration. While we had a good comp result of 4.9%, we believe June, while positive, was impacted by a slower than normal start to the summer holidays. We remain confident in our same store sales expectations for the full year and are narrowing our guidance range to 5.8% to 6.4%. Our team continues to manage our cost of sales to deliver long margin expansion and enhance shareholder value. Labor improvement drove the gross margin rate expansion this quarter through better labor management, especially from enhanced scheduling practices.

[Lori Flees, CEO & Director at Valvoline]

In Q2, we discussed the expected impact of tariffs in detail. While there continues to be uncertainty in the global trade discussions, our expectations of any impact to our financials are minimal and unchanged. As it relates to network growth, this quarter we added 46 new stores bringing our year to date total for gross store additions to a 116, 114 net of the two closures in q two. During Q3, we had a transfer of six stores from franchise to company ownership. This transfer was driven by strategic considerations to align markets and enable our franchise partners to concentrate their development efforts in markets where they are best positioned for growth.

[Lori Flees, CEO & Director at Valvoline]

The strong delivery of stores this quarter, along with the stores already in construction and in the acquisition pipeline, gives us confidence in meeting our store addition targets for the year. We continue to track to the midpoint of the range while recognizing consistent with what we shared last quarter that our pipeline is more back end loaded this fiscal year. We're pleased with the continued momentum of new store pipeline growth, including our recently refranchised markets. The progress of both our company and franchisee development teams reinforce our confidence in delivering our network growth targets and improving return on invested capital. I'd also like to give an update on the Breeze transaction.

[Lori Flees, CEO & Director at Valvoline]

We continue to work diligently with the FTC on a path to close this transaction. This path to close could include a plan to divest certain stores subject to FTC approval, but we're still too early in the process to know the specifics, and there is uncertainty around the timing. We hope to close in late Q4 or early fiscal twenty twenty six and we'll provide more information as soon as we're able. Before handing it over to Kevin to review our financial results, I want to officially welcome him to his first earnings call. As expected, he's quickly getting up to speed on how Valvoline's business looks today, and I appreciate the strong financial expertise he brings to the team. With that, I'll turn it over to Kevin.

[J. Kevin Willis, SVP & CFO at Ashland]

Thanks, Laurie. Glad to be with everyone today. Since joining, I've spent considerable time with our teams and on the road meeting with investors. This is a great company with a lot of growth opportunity to drive shareholder value, and I'm excited to be a part of it. Let's turn to Slide six and take a more detailed look at our financial results for the third quarter.

[J. Kevin Willis, SVP & CFO at Ashland]

Net sales increased 4% on a reported basis and 12% when adjusted for the impacts of refranchising. System wide same store sales increased 4.912% on a two year segment. The majority of the comp growth for the quarter came from increased ticket with premiumization, net pricing and increased NOCR service penetration all contributed. Transactions also continue to grow. And without the Easter headwind, transactions would have contributed roughly onethree to the comp.

[J. Kevin Willis, SVP & CFO at Ashland]

Similar to Q2, we're seeing stronger same store sales growth from the franchise stores. Pricing actions taken by some of our large franchisees continue to be a key driver. Turning to the next slide, we'll take a look at the financial drivers for the quarter. Gross margin rate increased 80 basis points year over year to 40.5%. This was primarily driven by labor leverage of more than 100 basis points, partially offset by increased depreciation from the addition of new stores of about 50 basis points.

[J. Kevin Willis, SVP & CFO at Ashland]

As Lori mentioned, we continue to improve our labor management through enhanced demand planning, which leads to improved schedule. SG and A as a percent of sales increased 80 basis points year over year to 18.5%, reflecting our previously discussed investments in technology infrastructure. Our technology investments accounted for about onethree of the SG and A increase over prior year. Year over year, when adjusted for refranchising, SG and A increased generally in line with the sales increase. We expect year over year SG and A leverage to return in fiscal year twenty twenty six.

[J. Kevin Willis, SVP & CFO at Ashland]

Sequentially, SG and A as a percentage of sales decreased 80 basis points. On an absolute basis, sales growth outpaced SG and A growth in the quarter. Adjusted EBITDA margin increased 30 basis points to 29.5%. On Slide eight, we'll take a look at overall profitability. Similar to the previous quarters this year, the refranchising transactions impact the comparisons to the prior year.

[J. Kevin Willis, SVP & CFO at Ashland]

We delivered strong profit growth with adjusted EBITDA of $130,000,000 a 12% increase over the prior year considering the impacts of refranchising and adjusted net income of $61,000,000 Adjusted EPS of $0.47 increased 18% considering the refranchising impacts. We finished the quarter with approximately $68,000,000 in cash and a leverage ratio on a rating agency adjusted basis of 3.3x. Turning to Slide nine, you will see our updated outlook for the year. Across the board, we expect to fall within the prior outlook and have tightened most ranges. Laurie already covered same store sales and network growth. Share repurchases are $60,000,000 year to date, having been paused following the Grieve announcement.

[J. Kevin Willis, SVP & CFO at Ashland]

For sales and EPS, we narrowed the ranges around the midpoint, and we raised the low end of the adjusted EBITDA range based on performance to date. With that, I'll turn it back over to Laurie.

[Lori Flees, CEO & Director at Valvoline]

Thanks, Kevin. Before we wrap, I want to thank our 11,000 plus team members and our franchise partners whose hard work helped deliver the strong revenue profit and store growth this quarter. We're grateful for their ongoing dedication as we are fully into the summer drag season. We feel good about where our performance will land for the year and are narrowing most of our guidance ranges. We have a resilient and durable business model that positions us well to deliver strong performance and long term shareholder value.

[Lori Flees, CEO & Director at Valvoline]

Now I'll turn it back over to Elizabeth for q and a.

[Elizabeth Clevinger, Investor Relations at Valvoline]

Thanks, Laurie. Before we start the q and a, I want to remind everyone to limit your question to one and a follow-up so that we can get to everyone on the line. With that, operator, can you please open the line?

[Operator]

Yep. Thank Our first question comes from Mark Jordan from Goldman Sachs. Your line is now open. Please go ahead.

[Mark Jordan, Vice President at Goldman Sachs]

Hey, thank you for taking my question. I guess as we think about going forward, full year same store sales growth guidance implies a pretty wide range of outcomes for 4Q. Can you talk about the different scenarios you see playing out there that might lead you to the high end and low end of the range?

[J. Kevin Willis, SVP & CFO at Ashland]

Sure, Mark. First, just a little bit about the comp for the quarter. We're definitely pleased with the financial performance of the business in the quarter. Good growth across the board for every key metric. We're happy about that.

[J. Kevin Willis, SVP & CFO at Ashland]

April and May performed in line with our expectations with good comps. As Laurie mentioned, we did see a slow start in June or a slower start to the summer holiday season. And that said, we did see consistent transaction growth across the entire system each month, including on tour stores. Transaction growth accounted for about 25% of the comp. Going forward, and we've talked about this a fair bit, we expect to see a good impact and good growth both in terms of transaction and ticket.

[J. Kevin Willis, SVP & CFO at Ashland]

As we look Q4, we narrowed the range. And while you're right, the absolute math would imply a pretty wide range of outcomes. We're pretty focused on the midpoint of that range, and that would be our overall expectation for the quarter.

[Mark Jordan, Vice President at Goldman Sachs]

Okay. Perfect. And then I think on the transactions were 25% of the comp there, so 70% or so were ticket. Can you break out the drivers of ticket, the magnitudes there, NOCR, net pricing and premiumization?

[J. Kevin Willis, SVP & CFO at Ashland]

Yes. All were contributors to ticket in the quarter. Don't really break those out specifically in terms of exact numbers, but all were contributors in the quarter, both for company stores as well as for franchise stores. So we were pleased with that, I would say, across the board on an overall basis.

[Mark Jordan, Vice President at Goldman Sachs]

Great. Thanks very much and congrats on the quarter.

[Operator]

Thanks. Thank you. Our next question comes from Stephen Tsecombe from Citi. Your line is now open. Please go ahead.

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Great. Good afternoon or good morning. Thanks very much for taking my question. I wanted to follow-up on the previous question. Can you just help us understand a bit more maybe what you saw in June?

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Do you think it was weather? Do you think it's some some macro impact? And then, you know, just given the guidance for the fourth quarter, we can kinda do the range. What are you seeing thus far in July? Like, have you seen a bit of an improvement versus what you saw in June?

[Lori Flees, CEO & Director at Valvoline]

Yeah. Thanks, Steve, and good morning. Overall, we feel you know, June started a little slow, relative to the summer holiday season. But when we step back, you know, the resiliency of the customer base is still incredibly strong. We're not seeing customers trade down or defer service, but there was some timing.

[Lori Flees, CEO & Director at Valvoline]

And I think some of that could have been the mild weather in the rain. We typically, you know, see that just slide volume around, and I think that was a contributor for June. However, as we went into July, those not that weather went away completely, but the the hot weather came back. I think that the summer holiday season and the driving picked up, we saw, you know, good traffic. Obviously, we have some benefit in July because of CrowdStrike last year, so we have a a bit of tailwind.

[Lori Flees, CEO & Director at Valvoline]

But if we take that impact out, we feel really good around transaction performance as we move through the month of July. And we feel very good about the momentum of the business, which is, you know, why our guide and narrowing is is slightly up from the previous midpoint.

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Okay. That's helpful detail. And then I'm going to ask a question just how should we start to think about same store sales planning for next year? Since you clearly have confidence you're going to be able to return to SG and A leverage, maybe just help us think about the preliminary planning for same store sales growth next year.

[J. Kevin Willis, SVP & CFO at Ashland]

Sure. While it's a bit too early to comment on fiscal twenty twenty six, I can say that we and the entire team are engaged in and working on plans for the upcoming year, and we'll be excited to share those plans a little bit later at a more appropriate time. In terms of SG and A, we're definitely pleased that SG and A growth has moderated as we expected it to. And as we indicated in comments, technology investments are mostly done, I would say, and accounted for about onethree of the year over year SG and A growth. As we fully lap those investments, which which should happen early in fiscal twenty six, we should expect SG and A leverage to return in 2026.

[Lori Flees, CEO & Director at Valvoline]

And I'll I'll just add, Steve, that, you know, the fundamentals of the sorry. See, I was just gonna add to what Kevin said. The fundamentals of the business have not changed. You know, we've been talking about the same drivers here, you know, since I joined the company. And really, the only significant change is really the inflationary environment.

[Lori Flees, CEO & Director at Valvoline]

And so the fundamentals that we're seeing around ticket contribution, you know, and having a healthy mix of that coming from ticket, Sorry. Ticket and transaction on the ticket side from continued opportunities and NOCR pricing and premiumization, combined with the growth in our customer base. You know, the fundamentals of our business haven't changed for the most part. The biggest thing is the inflationary environment. So I think, you know, considering what we're seeing in the market today, which is just the continuation of great tailwinds, great execution, you know, I think you'll continue to see strong same store sales growth from us, and and and continuation of growing share.

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Great. Thanks for all the detail. Best of luck.

[Operator]

Thank you. Our next question is from Simeon Gutman from Morgan Stanley. Your line is now open. Please go ahead.

[Simeon Gutman, Equity Analyst at Morgan Stanley]

Hey, good morning, everyone. My first question on transactions and ticket. How are doing? So this one third, two third, we've been, I think, in this mode for a bit. It used to be a little more balanced.

[Simeon Gutman, Equity Analyst at Morgan Stanley]

So could it get to be more balanced? And then getting to a slightly higher sustainable comp rate, do you need the transactions to lift? And is that expected to happen? Or is this the new normal?

[J. Kevin Willis, SVP & CFO at Ashland]

I think as we see newer stores start to mature, we will see transactions tick up. We do want to continue to work towards striking that balance between ticket and transaction. As Laurie indicated, in in the past few years, we've been we've been in a very inflationary environment. And by default, ticket has played a larger larger role in comp. I think as we as we go forward and assuming assuming a more moderate inflationary environment, we we should we should see a more balanced more balanced view in combination of of ticket and transaction.

[J. Kevin Willis, SVP & CFO at Ashland]

That's our expectation. And, you know, again, it's it's maturing the existing network. It's working, with the tour stores continue to grow. It's growing growing the base footprint as well.

[Lori Flees, CEO & Director at Valvoline]

And, Simeon, I'd just say that adding to what Kevin's saying, in this in this quarter, we did have the headwind of Easter, which impacts transactions. So at, you know, 25 north of 25% of our copy from transactions, When you take that out, it was significantly higher when you factor in the Easter flip. And we're consistent with what we've seen in the first half of the year. So we're not quite, you know, always hitting a fifty fifty balance, and I think that is, you know, that's hard hard to strike exactly, but we would be hoping to be more in that balance range over time. We do have, yeah, some headwinds on the ticket side, which will continue in our favor.

[Lori Flees, CEO & Director at Valvoline]

Premiumization is gonna continue as we see the car park evolve and and the number of cars where the OEM is recommending a full synthetic lubricant, you know, is growing. So we do have some tailwinds, which will continue to keep that ticket momentum strong. But but, again, I think we are getting to much more balance than what you've seen, from the cinelet over the last three years.

[Simeon Gutman, Equity Analyst at Morgan Stanley]

And then a follow-up, and it's related. If you look at the immature stores that are ramping, the oil changes per day, so I guess that would be your, you know, the transaction gauge, though those ramps are normal, below average, above average? How do you how would you characterize them?

[Lori Flees, CEO & Director at Valvoline]

So, Sydney, it's a great question and something that we we review on a regular basis looking at, what plan do we put in place for each of the stores that we put you know, that we went to build or to buy, and are they on track? And the good news and and by the way, we approve those based on the return on invested capital that we're gonna that we expect to get. And, there's incredible consistency around the performance of our new store ramps relative to that that set plan at the time we make the approvals. So we continue to see very good performance from our new store base, and those stores are expected to return, again, mid to high mid teens, in terms of return on invested capital. So still really positive performance from our our new store base.

[Simeon Gutman, Equity Analyst at Morgan Stanley]

Okay. Thanks. Good luck, everyone.

[Lori Flees, CEO & Director at Valvoline]

Thank you. Thank you.

[Operator]

Thank you. Our next question comes from Mike Harrison from Seaport Research Partners. Your line is now open. Please go ahead.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

Hi, good morning. Welcome to Kevin. Looking forward to working with you again.

[Thomas Wendler, Analyst at Stephens Inc.]

Thanks, Mike.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

To the extent that average ticket is going up, I was hoping we could dig in a little bit on how much of that is pure pricing. Presumably, you guys are responding to some higher costs for parts or filters or maybe some increases in labor costs and trying to push pricing. You also noted some incremental pricing actions by your franchisees as well. So I was just wondering if you could give us any help around quantifying that pure pricing component of average ticket, really just trying to get a sense of how much pricing momentum could be reflected in average ticket into next year.

[J. Kevin Willis, SVP & CFO at Ashland]

Sure, Mike. First off, I'll address the franchisee question. We did have one large franchisee that made some price adjustments. We talked about that last quarter. That's continuing to impact the comp on the franchise side versus the company side.

[J. Kevin Willis, SVP & CFO at Ashland]

Over time, we'll lap that, but we do still see that. I think as you look at the price portion of the equation for the comp, where we see a lot of opportunity is in continued growth in premiumization as well as NOCR. And NOCR has a lot of room to grow, both on an overall basis within company and system, as as well as improving improving the gap between our lower quartile performers in in our system versus the higher quartile performers. In terms of price related to potential cost headwinds, we talked about tariff impact last quarter. Nothing's really changed there.

[J. Kevin Willis, SVP & CFO at Ashland]

And we did give an indication of expected impact to operating cost based on the environment at the time. It hasn't changed all that much. And certainly, this is an industry that tends to take inflation, get inflation back to your price, and and that would be our expectation. But in in the end, the larger contributors larger contributors to ticket are going to be those actions that we take in the store from an execution perspective around premiumization, which, again, car park impacts that, and and, of course, in the CR, with with pricing just on an absolute basis being much smaller component than typically.

[Lori Flees, CEO & Director at Valvoline]

Yeah. I would just say, Mike, we've always talked about, they're being balanced across the three. I think where Kevin's coming from is the Carverc evolution driving the premiumness, and the and the NLCR penetration upside. It's certainly been strong contributors for us over the past twelve to eighteen months. But pricing has been a contributor, and we continue to review our pricing and do pricing tests actively in the marketplace.

[Lori Flees, CEO & Director at Valvoline]

And price was a very good contributor, not out of line of the expectations that we talked about in in our long term algorithm minus significant inflation. So we'll continue to look at our pricing. I do think we have taken at least one regional action relative to cost in that region, but that was not first pervasive yet. So while in my comments, we talk about no significant tariff impacts, as we have those, we will either find ways to mitigate them through other cost reductions, or we will pass this through to consumer. But right now, we haven't taken pricing across the board to mitigate any new new labor and or product cost.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

Alright. Very helpful. Thank you. And then I had a couple questions related to acquisitions. I see that you acquired eight stores in the quarter.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

Was that one transaction or multiple transactions? And I'm just, hoping that maybe you can give us some color on what the pipeline of of store acquisitions looks like. It seems like maybe you're you're still moving forward on some of these smaller deals even with the Breathe transaction, kind of pending here?

[Lori Flees, CEO & Director at Valvoline]

Yep. Great question, Mike. So during q three, we purchased six stores from a franchisee. It was one transaction. The transfer was driven by really us stepping back, looking at how the markets were aligned geographically, as well as where the franchise partners, development efforts and markets were best positioned.

[Lori Flees, CEO & Director at Valvoline]

And this was a mutual decision between us and the franchisee they actually wanted to focus their development in other areas. And so got to a very good outcome to transition those stores to company ownership. They are in the Louisiana market. It's a market that we think there's a lot of opportunity, and we actually have company markets that are adjacent. So from a g and a standpoint, it's actually synergistic with the company side versus their it was isolated from the franchisee that was operating.

[Lori Flees, CEO & Director at Valvoline]

And so we'll continue to, I think, look at they're really just small opportunities, and they'll go in both directions, but it'll it will never be more than a handful of stores. I think as it relates to our pipeline, we continue to have you know, they're over 4,000 independent group operators. And there's always from time to time, independent players who wanna make a transition, and they, you know, they don't have, they're not gonna pass it on to the next generation. And they want to make sure their people are taken care of, so they look to companies like Valvoline who can step into that business, play them pay them a fair market price, and take care of their people. We continue to use that strategy.

[Lori Flees, CEO & Director at Valvoline]

The returns on invested capital for acquisitions are incredibly strong, and we have a playbook. So we know how to convert those stores. We continue to build our pipeline. You know, the brief transaction is still pending, and we're still working hard toward it. But we continue to talk to the independent players that we've been talking to about their timing and where it makes sense for us to invest in growth and get a good return, we'll do that.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

Alright. Thanks for that. I did just wanna clarify, though. There were there were six conversions from franchisees, but it looks like there were also eight acquired stores. Was was that one transaction or multiple?

[Lori Flees, CEO & Director at Valvoline]

Oh, multiple on the eight. Sorry. Like, I'm just focused on the transfers. There were multiple. Most of the acquisitions that we do now are majority of them are single store operators or a couple store operators.

[Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners]

Alright. Thank you very much.

[Operator]

Thank you. Our next question comes from Steve Chamish from RBC Capital Markets. Your line is now open. Please go ahead.

[Steven Shemesh, Director - Equity Research at RBC Capital Markets]

Hey, good morning and thanks for taking the question. Wanted to ask two on on Breeze, and I'll I'll throw them both out there. First, the Breeze stores do about a million dollars in sales per store versus an average Valvoline about a million 7. So so first one is structurally, is there any reason for that gap? And then secondly, as we think about, integrating Breeze onto the platform, you know, from an SG and A standpoint, we're lapping over the tech.

[Steven Shemesh, Director - Equity Research at RBC Capital Markets]

We're talking about getting back to leverage. Are there any costs associated with the deal that might throw a wrench in that plan?

[Lori Flees, CEO & Director at Valvoline]

Yeah. Good question. Thanks for asking. It's Steve. So first of all, when we look at the performance of the Breeze stores, they've been building that network relatively quickly.

[Lori Flees, CEO & Director at Valvoline]

So the level of maturity of those stores varies, but given its size would be more heavily weighted to less mature stores. So that'll obviously be an impact. Second is the amount that is being invested in marketing and fleet activities is is different. And that's because, you know, they're building a brand. Well, that brand has been in the marketplace for a long time and they expand geographically.

[Lori Flees, CEO & Director at Valvoline]

If they're if they're not right sizing the marketing and have the technology, the tools, and the and the customer data, and the things that we've invested in building over many years, it's gonna take more time to build that volume across those base of stores. So we think those are all contributors, and it is part of the reason why the acquisition was attracted to us. And we believe that it will it will provide a very strong long term shareholder value return. In terms of the cost, the the good side about the Breeze business is it it actually operates very similarly to Valley. So these are are pitted stores.

[Lori Flees, CEO & Director at Valvoline]

They you know, in the way their service menu is is largely similar, although they don't provide all of the services that we do in our the IOC business. So there's there's some upside there too. But there in terms of cost, we'll have the normal you know, we'll we'll wanna make sure we look at safety, but this is the team that focuses on our people. So we we don't expect to have you know, I'm sure there will be small surprises as we as we get the okay to move forward, but we don't see any major significant stumbling blocks or capital investments at this time and be square we are in the process.

[Steven Shemesh, Director - Equity Research at RBC Capital Markets]

Got it. Thanks very much.

[Operator]

Thank you. Our next question comes from David Ballinger from Mizuho. Your line is now open. Please go ahead.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Hey, good morning. Thanks for the questions here. I want to follow-up on the franchise side. It seems like at least one of these large franchisees was taking more price. You spoke to that, maybe more price just across the board on the franchise platform.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Can you speak to the magnitude of that differential versus company owned? Any consumer pushback in those markets? And if not, should the company owned pricing close that gap over the next several quarters? Is that an opportunity for the core company owned to push price a bit more forcefully going forward?

[Lori Flees, CEO & Director at Valvoline]

Yeah. Thanks, David, for the question. When we look at our franchisee pricing, you know, some of that is geographically based. So we look at our franchisees that are you know, big portion of them are in the Northeast and in California. And so that does create some pricing differential, labor cost, and rent expense is higher, and they're typically runs a higher ticket also because of the car park.

[Lori Flees, CEO & Director at Valvoline]

So that is a difference. In this last year, you know, our franchisees are independent price centers. So we do not we we do not tell them what they need to price. They do their own market studies based on the markets that are involved. And we had one fairly large franchisee who hired some new talent in their organization in the middle of last year and did some work and recognized that they were not priced with the market.

[Lori Flees, CEO & Director at Valvoline]

They were below the market. And so they did adjust their pricing in the fall, and it was across the board. And it was I wouldn't say massive price, but it was significant. And they were not the only one to adjust price company. We had price adjustments, and in other franchisees, they made price adjustments.

[Lori Flees, CEO & Director at Valvoline]

But that one was an outlier and is creating, the significant part of the difference in the pricing contribution to same store sales between franchise and company.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Got it. Thanks for clarifying all that. And then just to pivot over to the tech investments. I think you mentioned a third of the SG and A growth this quarter. That could equate to something like 20 to 30 basis point impact.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Is the right is that the right level of SG and A margin we should get back next year as we move behind this smaller investment cycle within OpEx? Is there any way to frame what that potential could be into next year?

[J. Kevin Willis, SVP & CFO at Ashland]

Yeah. I think directionally, that's the right way to think about it. I think it's important to note that we would expect, the leverage to improve throughout the course of the year. We do still have to lap some of those investments early in fiscal twenty six that were done that were done earlier in this fiscal year. So we we will we'll see, I would say, less leverage early in the year and growing throughout the course of the year.

[J. Kevin Willis, SVP & CFO at Ashland]

Again, the quantum is is probably is probably pretty pretty close. But, you know, as as as as we as we look forward, I think, historically, you know, based on the based on sales growth, we've we've seen SG and A growth, grow kind of high single digits to low. In the end, it's too early it's really too early to say what fiscal 'twenty six is going to bring. But directionally, as we see SG and A moderate this year, it would generally be our expectation to see leverage improve over the course of 'twenty six. Again, too early to actually size it at this stage of the game, and we'll provide more on that most likely in the next call.

[David Bellinger, Director & Senior Analyst at Mizuho Financial Group]

Got it. Thank you both.

[Lori Flees, CEO & Director at Valvoline]

Thank you.

[Operator]

Thank you. Our next question comes from Peter Keith from Piper Sandler. Your line is now open. Please go ahead.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Hi, good morning, Laurie, Kevin, Elizabeth. Kevin, nice to meet you. I wanted to ask about the labor leverage. Saw 100 basis points of gross margin benefit, so that was fairly impressive. You're talking about taking advantage of new demand planning tools.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

So is there something unique to this quarter, or is this, you know, some, in the ballpark of the type of labor leverage you could see on a on a go forward basis with similar comp performance?

[J. Kevin Willis, SVP & CFO at Ashland]

Yeah. I I think what's unique about this quarter is we're starting to see the impact of a lot of work that's happened over the course of prior quarters in terms in in terms of developing an approach and really driving overall better execution. And I I think another another key aspect of this, as part of that tech investment stack that we've done was the implementation of Workday. As we continue to mature Workday, that should that should continue to provide us with opportunities to take a different look at at how we're how we're implementing implementing labor across our store footprint, which should ultimately provide us provide us with some opportunities to continue to prove that improve that over the course of time.

[Lori Flees, CEO & Director at Valvoline]

And some of that demand planning that's done is is more sophisticated. So really thinking about the level of technician that's required and the mix of technician skills. You know, as you get more sophisticated in the tools, you can start to right size the the wage rates that you need to to cover the shift. And I think our team has been working through some of that demand planning, which then allows for the best better scheduling. So it it's really just a continuation of some of the things we've talked about, but just getting more sophisticated based on the tools that we have on exactly what Kevin said.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. That sounds exciting. And then, I guess, with with Kevin on board, so I don't know if it's a question for Laurie or for Kevin, but I I think a lot of investors have been eager to see if you're gonna put in place a new long term, comp growth framework. Is that still the plan, and is that something maybe you're thinking about with the fiscal q four print?

[Lori Flees, CEO & Director at Valvoline]

Yeah. Absolutely. You know, we continue to evaluate the market environment. I think the beginning of this year, there was so much uncertainty around how the macro environment was gonna progress. Things have certainly been more stable for us than what we might have anticipated, so there's still some uncertainty.

[Lori Flees, CEO & Director at Valvoline]

We feel really good about the momentum of the business. Obviously, the inflationary environment still holds some uncertainty, and having Kevin on board really allows us to take a fresh perspective and figure out how we guide a long term algorithm despite some of that uncertainty. So really having him on board is is it's been a great time to help us think through that. You know, we are we are looking forward to sharing more at the right time and in the near future.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

And from Okay. From Very good.

[J. Kevin Willis, SVP & CFO at Ashland]

Where I Thanks so much. Being being relatively being relatively new to the new to the story or at least new to this version of the story, it has given me an opportunity to really step back and take more of a holistic look at the business, at the company and the growth potential. It really is a tremendous organization, tremendous company. And there's a lot of growth ahead for this organization. And we are working to really size that and get the algorithm right so that we can communicate it and then very importantly, on it going forward.

[Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies]

Very good. Thank you, and good luck.

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Thank

[Operator]

you. Our next question comes from Chris O'Cull from Stifel. Your line is now open. Please go ahead.

[Chris O'cull, MD - Restaurants & Franchised Businesses at Stifel Financial Corp]

Thanks. Good morning, everyone. Laurie, are surprised that you may need to sell some of the Breeze shops to get approval, just given how fragmented the market is today? And does that influence your thinking about future opportunities, acquisition opportunities?

[Lori Flees, CEO & Director at Valvoline]

So first of all, we'll just say that the FTC is has a normal approach that's not unique to us that looks at competition in the market. And this is the first acquisition, of of any scale in any recent years that they've looked at. So they really are looking to make sure that there's enough competition in the market to serve customers best. So I think their intentions are very consistent with with with where they have, you know, always focused. It's just I think this is the first time it's been something in our space.

[Lori Flees, CEO & Director at Valvoline]

In terms of the, you know, the discussions are really ongoing, and we're working with the FTC. One of the paths forward could be to sell a certain number of stores. We're obviously still working through those details. And and I think it's it's a very constructive process. Now we have to get the FTC to approve, and so there is a process of requirements of that.

[Lori Flees, CEO & Director at Valvoline]

But I think I'm encouraged by the progress that we've made today, the level of engagement that we're having. And, ultimately, the path forward, you know, will assuming the FTC agrees, will be consistent with our strategy, will drive long term shareholder value, and have the benefit of extending our reach consistent with the overall growth strategy. So as I mentioned, I think on on one of the fireside chat, you know, were we surprised? Yes. But when you actually get into the conversation, we should you we shouldn't have been surprised.

[Lori Flees, CEO & Director at Valvoline]

And it certainly doesn't change our growth story and the way that we will grow going forward. We're not getting any indication that there'll need to be a change in our strategy going forward.

[Chris O'cull, MD - Restaurants & Franchised Businesses at Stifel Financial Corp]

Okay. And then do do you see any I'm I'm assuming you're gonna be converting the brand to Valvoline. I'm just curious, do you see any risk in converting the brand to Valvoline just given the equity I'm sure that chain has in several other markets?

[Lori Flees, CEO & Director at Valvoline]

You know, it's a great question. We're really focused on the FTC process to to get to, the closing of the transaction, and that has actually limited some of the discussion that we've had with Eric and his team. But we absolutely recognize that there is a loyalty that has been built up in across that chain, not not just with customers, but with the people. And at the end of the day, the people are what drive the experience for those customers. So we absolutely have to be thoughtful around how we integrate, but that that's not new for us.

[Lori Flees, CEO & Director at Valvoline]

So we as was mentioned in a previous question, we acquired independent operators and have acquired previous chains. And so really thinking through how we make those conversions is something that we have experience in, and it's something that we work with the teams that will be, you know, coming on board with our company. And so feel very good about, you know, how that can progress given our experience, But, obviously, every situation is unique.

[Chris O'cull, MD - Restaurants & Franchised Businesses at Stifel Financial Corp]

Great. Thanks, guys.

[Operator]

Thank you. Our next question comes from Justin Kleber from Baird. Your line is now open. Please go ahead.

[Justin Kleber, Senior Research Analyst at Baird]

Good morning, everyone. Thanks for taking the questions. Wanted to follow-up on the tech spend. Just given investors have been so focused on the cost and the deleveraging the model and not as much on what the paybacks are. So so nice to see the labor leverage showing up in margin.

[Justin Kleber, Senior Research Analyst at Baird]

Can you remind us some of the other benefits or efficiencies you expect to realize, from from all these tech investments?

[J. Kevin Willis, SVP & CFO at Ashland]

Yeah. I think, one of one of the one of the more obvious is moving moving a lot of information, both information that that that we generate internally as well as as external information to cloud based platforms so that we can make more real time decisions around how and when we interact with with our guests, both both existing and and potential. And I think we've we've already seen some advantage come from that as well, and we would expect see to see that grow into the future. And, you know, I don't want to imply that there will be no tech investment going forward because there always is. And I think for for us, what's gonna be really critical is developing those business cases that will give us clarity and confidence in in our ability to generate a strong return from those investments as as we debate and and consider them internally and then ultimately execute on.

[J. Kevin Willis, SVP & CFO at Ashland]

So it's actually it's actually a pretty exciting opportunity for us going forward, both with what we've done already as well as some of the things that that we could we could certainly do in the future.

[Lori Flees, CEO & Director at Valvoline]

And I'll just build on what Kevin said because I I couldn't be more passionate about the opportunity that's in front of us. So when you think about the ERP and the HRIS, we talked about HRIS in terms of even some of the early wins on labor, and then there's more opportunity there. That comes from the tech investment and how we both combine the tech as well as the employee experience together in a way that drives that kind of benefit. On the ERP, we know that there's automation and more retail centric capabilities that the company has not had before that will make us more efficient on the g and a side over time as we scale. Kevin rightly pointed out that as we move things to the cloud like we've done with our customer data, it allows our marketing team to be more sophisticated, more real time oriented, and shifting marketing spend between different channels, which just makes our, you know, cost of customer acquisition and our life cycle management relationship building with our customers more efficient.

[Lori Flees, CEO & Director at Valvoline]

And then as we focus on store technology, like the replatforming of our super protect or even just the technology that we have in stores, that improves the ability to train our techs and get them up to speed more quickly. But it also most significantly benefits the customer experience. And when we benefit the customer experience, that that positively impacts customer retention. It impacts throughput in the store. It impacts ticket because they're able to present it on CR services better.

[Lori Flees, CEO & Director at Valvoline]

So we we see a lot of opportunity that tech will unlock, and we're in the early stages.

[Justin Kleber, Senior Research Analyst at Baird]

Thank you both for for all that color. Super helpful. Just a, an unrelated follow-up, and I apologize if I missed this, but your prior guidance for the full year assumed, I think, a flattish gross margin. Just curious how you would have us be thinking about gross margin in 4Q? Should we expect to see continued year over year margin rate expansion similar to what we saw here in fiscal 3Q? Thank you.

[J. Kevin Willis, SVP & CFO at Ashland]

Yeah. For Q4, we would currently expect margins to be at or modestly above prior year as reported. Obviously, we're we're still early in the quarter, but based based upon our forecast, that's that's what we'd expect for the quarter.

[Justin Kleber, Senior Research Analyst at Baird]

Thank you.

[Operator]

Thank you. Our next question comes from Thomas Wendler from Stephens. Your line is now open. Please go ahead.

[Thomas Wendler, Analyst at Stephens Inc.]

Hey, good morning everyone. Thanks for taking my question. I want to kick it off here with the $740,000,000 of the Term Loan B. $625,000,000 of that's kind of accounted for the Breeze acquisition, leaving $115,000,000 remaining kind of to be deployed. How are you thinking about utilizing that?

[J. Kevin Willis, SVP & CFO at Ashland]

The current thought process around that would be revolver pay down. We do have a drawn revolver currently. Pricing too is very, very similar. So by putting it into term loan B, we'll we'll just increase our optionality without really changing our our cost of capital, cost of debt. So it it really is it's no more complicated than

[Thomas Wendler, Analyst at Stephens Inc.]

that. Okay. No. I appreciate that. And then kind of an unrelated one for me here.

[Thomas Wendler, Analyst at Stephens Inc.]

You know, there's been a little bit of discussion about premiumization kinda impacting last quarter. Can you give us an idea of what the the current premium mix is for the oil changes?

[Lori Flees, CEO & Director at Valvoline]

So I think overall, we've been, open to say that our premium mix is around 80 percent, and that is a combination of both the blended, synthetic, MaxLife, and the full synthetic. And so what we see is that there's a shift into premium, from conventional, but but that's drawing against the 20% of our car park, give or take. And then you have a change up from max life into full synthetic. Most of that is driven that switch up, between max life and full synthetic is when you have older cars where they were high mileage and a customer had had switched up because of the high mileage to a blend. And they switched to a new vehicle, and the vehicle OEM recommends a full synthetic.

[Lori Flees, CEO & Director at Valvoline]

So that's there's still more upside. What, you know, what we look at is the car park we're serving. And the car park, you know, on the coast is higher premium than the car park in the middle of the country, so that obviously has has a has a driving effect of where premium mix has more upside across our network than not. But it's really car park driven. And as a car park continues to age, people move into premium mix.

[Lori Flees, CEO & Director at Valvoline]

And then as they switch out to newer vehicles, it switches up more more dramatically.

[Thomas Wendler, Analyst at Stephens Inc.]

Perfect. I appreciate the color. Thank you.

[Lori Flees, CEO & Director at Valvoline]

Thank you.

[Operator]

Thank you. Our next question comes from David Lance from Wells Fargo. Your line is now open. Please go ahead.

[David Lance Hays, Senior Due Diligence Consultant & Senior AVP at Wells Fargo]

Hey, good morning guys. Thanks for taking my questions. Any early indications on how we should think about franchise unit growth in '26? Just trying to get a a bit more color on on thinking through the ramp to 150 per year by '27.

[Lori Flees, CEO & Director at Valvoline]

Yeah. We we continue to accelerate the pipeline, which is the most important, and there's still a lot of opportunity to grow stores given how fragmented the market is and the fact that our stores only reach about 35% of the population. With the refranchising effort, we talked about the fact that those new franchisees or new owners of territories, they'll take some time to build up the pipeline. So we knew that that the current franchisees would contribute about two thirds of the 150 of the 150 new units per year. Then that continues to grow and pace nicely, and that the new franchisees would then contribute the rest, and that would be pretty back end loaded in the RAM.

[Lori Flees, CEO & Director at Valvoline]

And that definitely is proving to be true, but so you'll you'll continue to see us moving towards that one fifty target overall. But I I think we still feel very good around the development agreements that have been signed with our franchisees and the pace with which they're building the pipeline to to deliver on those.

[Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi]

Got it. That's helpful.

[David Lance Hays, Senior Due Diligence Consultant & Senior AVP at Wells Fargo]

And then just one more. Any update on on fleet performance and and, you know, how that looks today and if it's still outperforming the company average?

[Lori Flees, CEO & Director at Valvoline]

Yeah. The investments that we're making in fleet continue to pay off as growth, and our fleet customer base continues to outpace the consumer transactional and and ticket growth. The partner you know, we our partnerships with the franchisees has grown this year. So we put a big effort on this for company markets. Obviously, working with national fleet companies, but also many fleet management or fleet owners are regional or even local in nature.

[Lori Flees, CEO & Director at Valvoline]

And so as we expand our partnership with franchisees, it allows us to drive growth in that area. But it it continues to be a very strong contributor to our overall ranking.

[Thomas Wendler, Analyst at Stephens Inc.]

Thank you.

[Operator]

Thank you. This marks the end of today's q and a session and therefore concludes today's call. Thank you for joining us today. You may now disconnect your lines.

Participants

Executives

• Elizabeth Clevinger, Investor Relations
• Lori Flees, CEO & Director

Analysts

• J. Kevin Willis, SVP & CFO at Ashland
• Mark Jordan, Vice President at Goldman Sachs
• Steven Zaccone, Director & Equity Research - Hardlines Retail at Citi
• Simeon Gutman, Equity Analyst at Morgan Stanley
• Mike Harrison, MD & Senior Chemicals Analyst at Seaport Research Partners
• Thomas Wendler, Analyst at Stephens Inc.
• Steven Shemesh, Director - Equity Research at RBC Capital Markets
• David Bellinger, Director & Senior Analyst at Mizuho Financial Group
• Peter Keith, MD & Senior Research Analyst at Piper Sandler Companies
• Chris O'cull, MD - Restaurants & Franchised Businesses at Stifel Financial Corp
• Justin Kleber, Senior Research Analyst at Baird
• David Lance Hays, Senior Due Diligence Consultant & Senior AVP at Wells Fargo