Earnings Call Transcript - VVV Q1 2022

Operator, Operator

Hello, everyone, and welcome to the Valvoline Inc. First Quarter 2022 Earnings Conference Call. My name is Victoria and I'll be coordinating your call today. Please note that I will now pass over to your host, Sean Cornett from Investor Relations to begin. Please go ahead.

Sean Cornett, Investor Relations

Thanks, Victoria. Good morning and welcome to Valvoline's first quarter fiscal 2022 conference call and webcast. On February 8 at approximately 5:00 PM Eastern Time Valvoline released results for the first quarter ended December 31, 2021. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-K with the Securities and Exchange Commission. On this morning's call is Sam Mitchell, our CEO; and Mary Meixelsperger, our CFO. As shown on slide 2, any of our remarks today that are not statements of historical fact 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. Valvoline 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. Non-GAAP results are adjusted for key items, which are unusual, non-operational or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted non-GAAP results to amounts reported under GAAP and 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. Now, as we turn to slide 3, I'd like to turn the call over to Sam.

Sam Mitchell, CEO

Thanks, Sean. And thank you everyone for joining us today. Our Q1 results were strong, highlighted by 31% growth in total sales. Both segments contributed to this performance, with retail services achieving 36% sales growth, including nearly 25% same store sales growth, while Global Products sales increased by 28%. This growth reflects strong demand for Valvoline’s products and services. Overall, we saw 5% growth in adjusted EBITDA and 12% growth in adjusted EPS. We are pleased with our performance, considering the supply chain challenges and rising raw material costs we've discussed in previous calls. We believe we are well positioned to continue gaining market share moving forward. We have two strong market-leading segments that are both gaining share and delivering results. Based on our guidance for this year, we expect 14% revenue CAGR and a 13% adjusted EBITDA CAGR since 2019. We believe both retail services and global products are uniquely positioned to provide value to our customers by leveraging our team's capabilities. The separation we're pursuing is expected to support continued growth and success in their respective markets. Moving to highlights, our Retail Services segment saw outstanding top line growth, with Q1 sales increasing 36% year-over-year and nearly 60% compared to the pre-pandemic first quarter of fiscal 2020. System-wide store sales grew 31% over the last year, driven by a combination of strong same-store sales and unit growth. Same-store sales growth was exceptional, increasing nearly 25% year-over-year, propelled by transaction increases and a solid contribution from average ticket. We anticipate a moderation in same-store sales growth as we compare against impressive growth that began in Q2 of fiscal '21. Our full year guidance of 9% to 12% same-store sales growth suggests our production years will be in the low 30% range. Top line results were also boosted by the addition of new stores. We are actively expanding units and expect to end the fiscal year with over 1,700 stores. I'm pleased with the strength of our acquisition and new store pipelines, as well as our efforts with franchisees to grow their store base. Retail Services outpaced last year's adjusted EBITDA growth compared to both last year and two years ago, driving margin expansion. Next, we'll examine our exceptional transaction growth. Increased transactions have driven our outstanding same-store sales performance over the past year. Since 2016, our Retail Services segment has nearly doubled its system-wide transactions, surpassing the growth of the do-it-for-me oil change market. The broader market penetration remains low to mid-single digit, indicating significant room for future growth. Our quick, easy, and trusted approach positions us well to capture market share in the ongoing consumer trend towards convenience. Our data analytics capabilities continue to improve, helping us develop predictive models to drive ongoing customer acquisitions. We've excelled in retaining new customers alongside our existing ones. As we add more stores, we will reach a broader customer base and gather more data, allowing us to market our current and future services effectively, accelerating market share gains. As announced in our press release earlier this week, we've begun piloting an electric vehicle service package focused on consumers with battery electric vehicles. The pilot will launch in a limited number of stores to develop our operational capabilities before expanding to company-owned markets as we explore additional service offerings. We aim to provide quick, easy, and trusted services for both EV owners and as a partner to EV manufacturers and fleets. We previously announced a service partnership with Arrival, an early entrant in the EV space. This pilot represents progress in both areas. We are taking a disciplined approach to rolling out EV services, maintaining our focus on delivering a superior customer experience. Ultimately, as our customers purchase EVs in the future, we will be ready to serve them across our conveniently located stores. Now, let's review our results in Global Products. Our Global Products business maintained momentum in Q1, with sales up 28% year-over-year and up 32% compared to the pre-pandemic fiscal Q1 2020. Sales growth has been strong across regions, and we continue to gain market share despite supply chain challenges, as reflected in volume growth. The demand for our lubricants and solutions remains robust, and we are well positioned to capitalize on opportunities as the supply chain normalizes. Adjusted EBITDA saw a decline compared to last year, primarily due to price cost lag impacting margins. Despite margin pressure, discretionary free cash flow remained solid, and we expect steady cash generation from this segment moving forward. As we explore margins, like many industries, we are experiencing cost pressures from raw materials and supply chain disruptions. After a decline at the onset of the pandemic in 2020, raw material costs have predominantly increased due to rapid rises in base oil costs starting in fiscal 2021. We have seen more stable raw material costs in recent months and will continue to monitor market conditions. We initiated passing on raw material cost increases through pricing in the second half of fiscal '21 and continued this practice in Q1 this year. We've made substantial progress in passing on price increases and will continue these efforts to recover our costs. In a rising raw material environment, we are affected by price cost lag; however, we've historically been able to improve our unit margins in subsequent periods. Recently, supply chain challenges have led to increased costs and inefficiencies, including higher logistics costs and lower inventory levels than usual, which has affected manufacturing efficiency. Our team has done an exceptional job managing these challenges and meeting customer demand, although at temporarily higher costs than normal. We have a strong history of recovering cost increases with pass-through pricing, leveraging our brand strength and focus on customer service. The pandemic-related volatility has extended our typical recovery cycle, but our confidence in recovering costs over time remains unchanged. Our Global Products business has successfully gained market share around the world, utilizing our established growth drivers. We build and optimize our routes to market, create a strong portfolio of products and solutions to serve our channels, and invest in marketing to bolster brand equity and drive consumer demand. Our value-added selling approach enables us to succeed with mechanics, installers, and fleet owners. As highlighted before, Mexico is a prime example of our success in expanding our reach by optimizing our distributor network. We’ve invested in digital marketing to boost brand recognition and relaunched our product portfolio. We have significantly increased our market share in Heavy Duty in Mexico over the last five years. We are also seeing share gains in other regions, including India, China, and Eastern Europe. In the US DIY markets, we have strengthened our position across our product portfolio by securing additional shelf space at leading retailers and extending distribution into new channels such as farm and convenience stores. Despite supply chain challenges, our team has excelled in supplying our customers and outperforming competitors. The recent launch of our Extended Protection product has been positive in the market, leading to significant share gains in the premium synthetic category. We believe Global Products is poised to continue gaining share, recovering costs, and generating consistent cash flow. With that, I'll hand it over to Mary to discuss our financial results in more detail.

Mary Meixelsperger, CFO

Thanks, Sam. Our Q1 results are summarized on slide 13. We continue to see exceptional top line growth, both year-over-year and versus the pre-pandemic period two years ago. Sales growth in the quarter was driven by both segments, highlighting the momentum in each business. Outstanding growth in retail services profitability was tempered by lingering price cost lag in supply chain related cost impacts in Global Products, as Sam discussed earlier. Our adjusted effective tax rate in Q1 came in lower than the prior year, which benefited adjusted EPS. Let's take a closer look at the segment EBITDA margins on the next slide. EBITDA margin expansion in retail services was driven by stores open more than three years, where margins improved by 200 basis points to roughly 35%. This resulted from exceptional top line growth highlighting the anticipated runway for margin expansion as our newer stores mature. As expected, adjusted EBITDA declined in Global Products driven by short-term cost pressures impacting margins. Despite cost pressure, adjusted EBITDA was flat to pre-pandemic Q1 of fiscal ‘20, reflecting strong volume growth. Sales growth outpaced volumes, highlighting continued progress in pass through pricing and setting the segment up for improved profitability and margins over time. Discretionary free cash flow generation in the segment remains healthy and on pace for a steady 200 plus million again this fiscal year. As you can see on slide 15, maintenance capital in Q1 remained at roughly 1% of sales, while total CapEx was flat versus last year, highlighting our capital-light business model. A timing related increase in working capital driven primarily by our strong sales growth led to a year-over-year decline in operating cash flow and slightly negative free cash flow in the quarter. We still expect to generate a strong free cash flow of more than $260 million this fiscal year. In Q1, we returned $54 million in cash to shareholders via dividends of $23 million and share repurchases of $21 million. We expect to continue our consistent share repurchase strategy that we previously outlined. Let's review our fiscal ‘22 guidance on the next slide. We are reiterating our guidance across nearly all our key metrics. We anticipate total sales growth of roughly 20%, driven by continued volume growth and pass through pricing in Global Products and continued strength in same store sales and retail services. We are encouraged by the ongoing strength of our pipeline for store additions, both ground ups and acquisitions on the company side and especially unit growth by our franchisees. We continue to expect overall adjusted EBITDA to be in the range of $675 million to $700 million, representing 6% to 10% year-over-year growth. We’re modestly lowering our tax rate outlook to 24% to 25%, which flows through to adjusted EPS, where we expect to be in the range of $2.07 to $2.20 per share.

Sam Mitchell, CEO

Thanks, Mary. Before we wrap up the call today, I wanted to touch on our progress with the separation of our Global Products and retail services businesses. Both segments are performing well financially and operationally with strong demand tailwinds and ongoing share gains. Each segment is a leader in its markets and has significant scale with the solid foundation to successfully operate as independent businesses. We are making great headway since we announced our decision to pursue a separation in October. Our teams have done significant work to prepare each business to operate independently and lay the groundwork for a smooth separation. We're working with our external advisors to ensure that each business has the right infrastructure and support to operate independently and to mitigate dis-synergies once the formal separation transaction is announced. We believe the separation will create significant and long-term value for our shareholders, employees, and other stakeholders. We're on track and working with speed to capture this compelling opportunity. Moving to the last slide of today's presentation, we have had a great first quarter across Valvoline. And I'd like to express my thanks to our teams around the world who have enabled this success. Both segments have driven significant topline results and continue to perform well. The results show that the demand for Valvoline’s leading products and differentiated services is robust. We look to leverage this early momentum as we execute over the rest of our fiscal year, given the growth opportunities we've identified and the trends we're seeing in the market, we are reiterating our strong outlook for fiscal 2022. On the capital allocation side, we expect to continue to execute against our share repurchase authorization to support shareholder returns.

Sean Cornett, Investor Relations

Thanks, Sam. I'd like to remind everyone to limit your questions to one and maybe just a few follow-ups so that we can make sure we get to everyone. With that, Victoria, please open the line.

Operator, Operator

Thank you, Sean. We will now start the Q&A portion of the call. Please go ahead.

Simeon Gutman, Analyst

Hey, good morning, everyone. I have two questions. My first on the quarter and then second on the separation. On the quarter, if it's possible, and I know you may not want to do this, but for North America, sales up 29%, are you able to separate price and volume for us?

Mary Meixelsperger, CFO

Yes, Simeon, I can give you a little direction there. And I'll talk specifically across the total global products business. The volume benefit we saw in the global products business in total had a benefit of about $28 million. On the price cost side, the price cost lag impact was about a negative $30 million, just under for the quarter. So that's the gap that we're working. We've made real progress in passing pricing through. I think we've recovered a little bit better than 65% of our costs and we're continuing to work to recover costs for the remainder. So really that was about the size of the price cost lag across the overall Global Products business. About two-thirds of that was in the North America business, Simeon.

Simeon Gutman, Analyst

Thank you, Mary, that's helpful. My second question concerns the separation between retail services and global products. Which side actually owns the intellectual property for the Valvoline brand? I'm curious about how retail services will procure the oil and whether the brand belongs exclusively to one side or the other.

Sam Mitchell, CEO

Yeah. So we haven't announced any specifics on the relationships regarding how the brand will be essentially shared and executed for both the businesses or the product supply relationship, but I can add just some context and what we believe and are very confident we'll accomplish. Both sides of the business will have access to the brand name, and in that IP for what drives success in the business. The Valvoline brand brings a tremendous amount of value to our product side of the business and it helps us command that premium margin really across all channels from DIY to installer to heavy duty and around the world. And of course, that brand out in front of our stores is a great symbol of quality and drives customers to our stores with the high expectation of excellent service and products. And so that also is important too is that the retail service side of the business will continue to use and source Valvoline products from global products. What should be clear to investors and analysts is that Global Products will now in the future own the supply chain. And then there will be a long-term supply contract between retail services and Global Products. So the Global Products can earn a fair margin on that business and retail services can benefit from the high levels of service and using the highest quality products in our service offering and all of our stores.

Simeon Gutman, Analyst

That's helpful, Sam. I have a follow-up to that. Since there will be a cost to procure the oil, is there a way to offset that, or is it simply a cost of doing business that you anticipate?

Sam Mitchell, CEO

Yeah, this is one of the important areas that we've been working on to minimize any dis-synergies. With the arrangements that we're evaluating, again, not yet announced in terms of how exactly it will work, but we do not see a significant shift in profitability from one segment to the other segment. More to come on that, but what's important for you and others is to understand that we've got a great plan in place to minimize any of those dis-synergies.

Operator, Operator

Thank you for your question. And our next question comes from Mike Harrison from Seaport Research Partners. Please go ahead, your line is open.

Mike Harrison, Analyst

Hi, good morning. Congratulations on a nice start to the year.

Sam Mitchell, CEO

Thanks, Mike.

Mike Harrison, Analyst

I was wondering if you could discuss what you're observing regarding gross margin. There was a couple of hundred basis points of decline in sequential gross margin. We monitor base oil prices, and I believe you mentioned some stability in base oil pricing. Could you elaborate on what you're seeing in terms of additives and other raw materials beyond base oil? Additionally, what kind of impact did you experience from supply chain disruptions and lower inventory levels, which led to some inefficiencies? I'm looking for more insight into the sequential gross margin decline and whether we've reached a bottom regarding the price-cost impact on gross margin. Thank you.

Sam Mitchell, CEO

Yeah. Why don't I cover big picture and Mary can add some color to it if necessary. While we have seen some stabilization in recent months, we have also seen crude move up more recently into the $90 range. I think we're nearing the top of the inflationary cycle but maybe not quite fully out of it. So it's been a challenging period that we've been in because these are some of the most significant increases in cost that we've seen in over an extended duration, I think we've seen roughly 7 base oil market increases over the last 9 months. Those base oil costs are in the range of plus 80% from when we started the cycle, so pretty significant. Nonetheless we've been making moves appropriately in adjusting our finished lube pricing to the market to help us cover those costs. As we've explained in the past, we have a good portion of our business in the US on quarterly or long-term contracts that adjust pricing on a quarterly basis. That helps us mitigate price cost lag effects for some of those large national installer accounts, for example. But we do tend to have a larger lag impact in the DIY market where it's more of a negotiated price increase. We have scheduled promotions throughout the year, our merchandising events at our big retailers, and we're locked into when we can adjust prices, when it's appropriate to do so. We monitor both our merchandising schedule and our competitors to make the appropriate moves at the right time. We're definitely feeling some lag there in the current quarter, and I would say in the upcoming quarter. But over the course of 2022 we will be taking the appropriate pricing actions to recover those costs. Again, I'm confident we'll get back to where we need to be. If you go back to, I think it was Page 10 in the presentation, it lays out that trend in pricing and how we are adjusting pricing appropriately to cover those costs. It is widespread; it's not just base oil. It's the additive market, packaging, logistics; there are inflationary pressures across the board. The pricing actions we take are meant to recover all those costs as we move through this period. We're optimistic as we think about the strength of the business long-term because as we peak in this inflationary period, then we catch up. If you look at the strength of our demand right now, I think we're outperforming the category in general, both here in the US and in international markets. I think we're really well positioned to benefit from that, driving share growth and increased profitability over the long term. Again, challenging period, but our team is doing an amazing job, outperforming competitors and our ability to supply our existing customers. We're not out of the woods yet, but I mentioned in the presentation that our inventories are pretty tight. We'll keep working hard to continue to meet customer demand for Valvoline products and hopefully position ourselves well to benefit from longer-term share gains.

Mary Meixelsperger, CFO

Our inventories are tight, but it's not just us; it extends throughout the supply chain. Customer inventories are also at very low levels. The depletion of safety stock across the entire inventory chain has been significant, which presents an opportunity for us as the supply chain normalizes and these inventories are replenished. We expect to see some demand benefits from this. Additionally, due to the lower inventory levels, we've encountered some manufacturing challenges and modestly higher costs related to more frequent production runs and increased overtime. This has placed additional demands on our manufacturing operations to meet the current demand in an environment with lower inventories, resulting in some extra costs for us. Furthermore, we are observing cost increases in additives and logistics that have contributed to the decline in margins compared to the fourth quarter.

Mike Harrison, Analyst

All right. Thanks. I appreciate all the color there. I wanted to ask also about the announcement on the pilot program for electric vehicle services at your VIOC locations. Maybe talk a little bit more broadly about all of the steps that you're taking to expand your EV customer base? And can you also provide some sense of how the revenue from EV services that they need in a year or in some period compares to the revenue that you would see for maintenance on internal combustion engine vehicles?

Sam Mitchell, CEO

Yeah, Mike. As we presented, we're going to be focused on our service offering for those EV vehicles and those owners in the passenger car market. But we'll also be working with OEMs to ensure that we're pursuing strong relationships there, supplemented by some of the product work we're doing with EV OEMs in heat transfer fluids, for example. Partnerships like Arrival not only can help position us for incremental sales to our stores with fleet customers like Arrival, but also help us learn and strengthen our offering in our stores and where we need to make additional investments, say, in our technical capabilities. So I think it's going to be a great partnership for learning and growing with them. We're really pursuing both fleets and passenger cars. It will take some time for the EV market to be significant in size, but what we're doing now is preparing for that future to ensure that we deliver the job with excellence, which is what we're known to do. Our teams are highly trained and qualified to provide any preventive maintenance services. Regarding the longer term, we want to ensure our Valvoline customers are informed well in advance of making an EV purchase. When they do make that purchase, if they choose that route, they know that their vehicle can be serviced at Valvoline. We know our big advantage is in providing a quick, easy, trusted experience, and we're significantly more convenient than going back to a dealership location. Consumers seek that convenience in their preventive maintenance, and we'll continue to strengthen our advantage, regardless of how the vehicle is powered. Going back to your second part of your question around the revenue per vehicle on an annual basis, that is important. We're working to better understand what that revenue per vehicle might look like, the frequency of service, and then adjusting our offerings accordingly. Based on our insights, we suspect that frequency may be less with EVs compared to internal combustion engine vehicles, but the service offering and revenue from that transaction might be very attractive for us as well. We will learn throughout the coming years. Our positioning of Valvoline is designed for continued growth and thriving, regardless of how those vehicles are powered.

Mike Harrison, Analyst

All right. Thanks very much.

Sam Mitchell, CEO

You bet.

Operator, Operator

Thank you, Mike for your question. Our next question comes from Jeffrey Zekauskas from JP Morgan. Please go ahead.

Jeffrey Zekauskas, Analyst

Thanks very much. In the retail business, your operating income was very strong compared to last year, but it was lower than in the third and fourth quarters of last year and roughly flat with the second quarter. Do you need to raise prices in retail? It seems your margins are getting tight, so what are your plans regarding that?

Sam Mitchell, CEO

Yeah. Mary can add some color regarding detail on the margin, but pricing is an important part of the equation, Jeff. The inflationary pressures hit our retail services too. They are twofold in that product prices are going up, and we need to reflect that in our pricing for our services. Labor costs are rising as well, and everyone is familiar with some of the labor challenges. We want to be on top of that. We're adjusting our entry-level wages appropriately and ensuring that we remain competitive. We typically pay above other retailers for entry-level wages. Pricing actions are necessary to cover the investments we're making in our team. We have a very disciplined approach to adjusting prices, where we're evaluating different price points in pilot markets around the country. We also separate markets in terms of competitive dynamics and locations. We've taken some pricing action, some of which took effect this month, while others will take place a little later this year, allowing us to protect our margins amidst these inflationary pressures. Mary, do you have anything specific to add on the margins themselves?

Mary Meixelsperger, CFO

Yeah, I would tell you, Jeff, that our adjusted EBITDA for the business for the quarter at $98 million was, I think, a record for us and substantially better than any quarter that we saw last year. If you look at it compared to two years ago, our adjusted EBITDA is up 72%, relative to the first quarter two years ago. So we're continuing to see great momentum there. Our EBITDA margins were down a little bit and that's really a factor of just higher product costs being passed through to our franchisees. Our franchisees operate under similar type of indexed arrangements that we do with our other installer channel customers. From a unit margin perspective, there is a little bit of a lag. We pass that through on a quarterly basis. If you look at the absolute margin from a rate perspective, it has a deflationary impact on the margin rate, but if you look at the unit margin perspective, that stays whole. So when you're evaluating those margins, you are seeing some impact of that pass-through pricing on the product side of our product sales to our franchisees.

Jeffrey Zekauskas, Analyst

Okay. So your adjusted EBITDA in the quarter was $156 million. If we annualize that, that's about $635 million. To reach your guidance, you need, I don't know, $50 million to $75 million more in EBITDA. Where are you going to get that from? Is that mostly price recovery that you think you can capture in the course of 2022?

Sam Mitchell, CEO

Jeff, Q1 tends to be our lowest quarter at times of volume, both in Global Products and retail services. There's not a lot of cyclical effect, but Q1 is lower than the other three quarters. That's your biggest driver right there. So we expect to see stronger profitability in the balance of the year.

Jeffrey Zekauskas, Analyst

Okay. And then lastly, do you think you'll separate your businesses this year? In terms of communicating with your investor base, will we know what you're going to do before you do it, or will we only find out after something happens? What can we expect regarding timing and communication?

Sam Mitchell, CEO

Great questions. As I said earlier, we feel very good about the progress we're making. It’s a disciplined process when separating the businesses, and we've had some experience from Ashland five years ago. We're working through that process with our Board to evaluate the best ways to accomplish the separation. I believe we've been clear that we're looking to drive shareholder value and make the separation as effective as possible. There are multiple ways to achieve that, and we may not have a single answer to provide you today. When we're able to share news, we will be forthright. However, it's unlikely we will indicate the net debt of the separation prior to an important announcement for the market. As for timing, I think it's important for us to move quickly—we're following a disciplined schedule and have two strong businesses that we're very bullish on. I expect good outcomes in a timely fashion. So, yes, I would expect that within this fiscal year.

Jeffrey Zekauskas, Analyst

Okay. Great. Thank you so much.

Operator, Operator

Thank you, Jeffrey for your questions. Our next question comes from Laurence Alexander from Jefferies. Please go ahead.

Maria Milina, Analyst

Hi. This is Maria Milina for Laurence. I just have one question. Based on the guidance that you gave in the range, I'm wondering what has to happen for you to land on the high end of the guidance or what has to happen for the lower end?

Sam Mitchell, CEO

I think margins will have a big impact on it. It will be the biggest driver. What you heard in our presentation today is we're bullish on the strength of demand for both sides of the businesses, but there is real margin pressure. We may still have some inflationary cost issues during the balance of the year, and we have pricing to execute. The timing of those cost increases and price increases will determine where we are in that guidance range.

Mary Meixelsperger, CFO

And Sam, the continued stability of the underlying raw material environment plays a role as well. If we see more inflation coming at us in base oils, additives, or logistics, I think that could push us to the bottom of the range.

Jason English, Analyst

Hey, good morning folks. Thanks for slotting me in. Two questions. It seems like your retail services business may have faced a number of headwinds so far this quarter between Omicron, margins in those payments, weather disruptions, et cetera. So in that context, can you give us some more real-time color on how the business is performing quarter to date?

Sam Mitchell, CEO

Yeah, we're seeing good momentum continue into the second quarter. In January, we felt the effects of Omicron with staffing in the stores, yet our team has done a great job of moving resources around within market to keep our store staffed, to ensure we open on time and provide necessary services for our customers. This is true for the industry too. Big kudos to our operations team for handling this level of disruption in January. We continue to monitor customer satisfaction scores as it impacts service quality and are pleased to see that our overall satisfaction scores have even ticked up. So, I'm excited about moving forward. We are past that tremendous disruption in early January due to Omicron, and now it's back to increasing staffing in our stores, working on stability, and reducing turnover. We've got a solid plan in place. Our long-term success will depend on becoming an employer of choice and maintaining stability in the stores. One of our ways to win is through the quality of hiring and the training provided in the first six months on the job to get employees up to speed quickly. When we accomplish that, not only do they deliver better service, but they become fully engaged employees who recognize the opportunities within Valvoline for a great career.

Mary Meixelsperger, CFO

And Jason, the other thing I would call out for you is that if you look at last year's cadence of our comparable store sales increases by quarter, the first quarter was the smallest comp at 6% last year. So, when you take our almost 25% this year, the two-year stack is just over 30%. As we've mentioned, we expect that two-year stack to be better than 30% for the full year. Keep in mind that these are much stronger comps in the remainder of the year compared to the significantly weaker comps two years ago. So it's just an odd phenomenon due to the pandemic. If you think about this while modeling, aiming for better than 30% on a two-year stack seems accurate.

Jason English, Analyst

Got it. Yeah, that makes sense. I think you mentioned that in the release as well. The next question is on the global product. You spent considerably more time than usual discussing global products. I want to come back to it quickly in the context of your long-term targets. I guess the numerator/denominator impact of price and cost, and I appreciate that your long-term EBITDA margin targets as a percentage rate are probably a bit antiquated at this point. But from a penny profit perspective, in the last five years, your EBITDA per gallon has been mid to high 80s. Is that the right way to think about what you're going to get back to? How long does it take to get back there? And as the revenue target you set out, most people I talk to look at this part of your business and say it’s a declining business. The TAM doesn’t have much growth. Now, obviously, that contrasts significantly with the larger targets you've laid out. When skeptics make those statements, what do you think they're missing? What gives you the confidence this business has inherently much more growth characteristics than many of the skeptics argue?

Sam Mitchell, CEO

Yeah. First part of your question, we can delve into more details, but you’re right to view in terms of profit per unit. We expect to get back to our profit per unit at the end of the inflationary cycle. This one is a little bit longer and deeper, but it doesn't change our confidence in our ability to achieve that. It impacts the EBITDA margin percentage-wise, and your point is valid. We will need to adjust our longer-term targets with the elevated prices impacting EBITDA margins. However, the profitability we expect has a bright future for growth. That's based on our current momentum; we saw it before this quarter. Despite being disrupted by COVID, we witnessed solid volume growth in all our key regions. We’ve invested in teams and capabilities across China, India, Europe, and Latin America. As a result, we’re capturing steady volume growth, market share in these regions, and evolving into a more global company. When we evaluate our product portfolio, pricing strategies, and marketing plans, the excellent progress in these international markets fuels our growth outlook. Number one is a fundamental driver for us. In the US, we are seeing changes sprout; you’re well aware of the challenges DIY faced back in 2018 and 2019. We've made changes to strengthen our business by managing the pricing gap against private labels and investing in synthetics categories. We're witnessing success as we gain share and build new distribution channels, increasing volumes and margins for retailers. The strategy excels further within the independent installers segment. Unlike competitors, we offer a full range of products, including lubricants, coolants, and chemical solutions, supported by marketing programs. Our heavy investments in digital platforms to enhance communication with that installer base have yielded positive outcomes, improving loyalty and driving dollar-based volumes. Optimistically, we view the DIY and installer forecasts as low single-digit growth rates with solid margins because of our competitive edge. In contrast, the international business sees strong growth targets of high single-digit rates. We remain bullish about this business's direction for the next decade.

Jason English, Analyst

Good stuff on all the incremental color. Thanks a lot. I'll pass it on.

Sam Mitchell, CEO

You bet.

Operator, Operator

Thank you so much, Jason for your question. Our next question comes from Stephanie Moore from Truist. Please go ahead.

Stephanie Moore, Analyst

Hi, good morning. Thank you.

Sam Mitchell, CEO

Hi, Steff.

Stephanie Moore, Analyst

Hi, everybody. My first question is a follow-up to Jason's here, but could you expand or give a bit more color on the strength you're seeing in international? You noted in your prepared remarks, you're continuing to see strong momentum, continuing to gain share. Maybe just provide some incremental substance there, thank you.

Sam Mitchell, CEO

Yes. Some tools enhance our delivery of value to US customers, particularly in the installer and fleet business. What we're doing is globalizing that strategy enabling us to expedite support with our products. In the international business, strength is built on strong distribution channels. We've enhanced our distributor networks to access more installers, car owners, and fleet owners. This effort has significantly increased our penetration across multiple markets. Mexico showcases our efforts; five years ago, we reached no more than half of the market. Today, we're closer to 90% penetration, enabling effective customer service across the nation. Next, it’s essential we provide marketing programs and training that competitors generally overlook. Many of our international installers are small, localized operations. Our commitment to providing sophisticated marketing and training has set us apart. We seek to introduce digital platforms in international markets to provide better convenience and efficiency. The investments we’ve made in our teams and regional capabilities yield profitable and scalable growth. We trust those markets imbue compelling products and develop strategies tailored for growth and competitive positioning. And I trust in the next decade, there will be substantial avenues for growth alongside evolving service channels.

Stephanie Moore, Analyst

Got it. Lastly, just shifting over to the retail segment. Could you give us a brief update on progress with non-oil change services? You commented on the EV pilot, but what about other services that support your long-term growth algorithm? Thanks.

Sam Mitchell, CEO

Yeah. As a reminder, close to 25% of our ticket revenue is derived from non-oil change services. We expect that figure to expand as we enhance service presentations for customers regarding their vehicle needs. Backed by our data, we guide customers in making informed decisions on necessary services. Therefore, we educate our teams to facilitate these conversations, which instills confidence in our customers when maintaining their vehicles, revealing further profit potential. Progress has been made in our efforts as we strengthen training programs and elevate improvement measures, but we recognize ongoing work is necessary. Some of the COVID disruptions challenged our capacity for consistent presentations. Nonetheless, we made strides, evident in the improvement of our battery program. By testing every battery coming in, we've doubled battery sales in our company stores. This initiative is rolling out across our franchise locations, emphasizing our value of convenience and trust with customers. We anticipate continuing the expansion of our non-oil change revenue initiatives, refining current services, and growing future offerings.

Stephanie Moore, Analyst

Great. Thank you guys so much.

Operator, Operator

Thank you for your question. At this time, there are no further questions. I'd like to thank everybody for joining today's call. You may now disconnect your lines.