Valvoline Inc (VVV) September 2026 Conference Transcript

All right. Good afternoon, everyone. Thank you for joining us at the Goldman Sachs Global Consumer and Retail Conference. My name is Mark Jordan. I'm an analyst here at Goldman Sachs, and it's my pleasure to moderate our fireside chat and introduce to you Valvoline, Inc. We have with us today Lori Flees, CEO and Director, and Kevin Willis, CFO. Lori and Kevin, thank you so much for joining us today.

Thanks for having us.

I think a good place to start might be to provide some background for anyone in the audience who's not familiar with the Valvoline story. Valvoline is a leading provider of automotive services specialized in a quick lube segment so that's quick and easy stay in your car oil changes so they also do ancillary services the platform is nearly 2,500 locations and roughly half of those are franchised so with that I think a good place to start off might be the nature of demand right so if we think about the quick lube market and Valvoline's position in it in particular there's a couple of tailwinds secular tailwinds you guys benefit from a shift toward convenience of course by myself and everyone here values their time and what you do is you cut time out of a necessary service for a lot of people vehicle owners so that's a tailwind but then you also have an aging vehicle population and just natural tailwinds from a mix shift to premium oil so can you talk about how that's impacting the quick loop space the trajectory as you look forward and I think about the growth of the market yeah sure I mean I think you've covered a lot of the key ingredients that are tailwinds for our business.

But Valvoline provides a service that is really considered non-discretionary. As people own a vehicle and want to maintain that vehicle and the value of that vehicle for as long as they can, they need to do preventative maintenance. And that's exactly what we provide. And there are a lot of tailwinds that are things that we benefit from. So cars are getting older. When a car gets older, it needs more preventative maintenance. Two, the drive for convenience. I always talk about if you told my teenage self working at Taco Bell that people would pay three times as much to have tacos delivered to their home, I never would believe it. But the drive to trade money for time is growing. And that's exactly what we give our customers back is time by making it quick, easy, and trusted. I think the business is still highly fragmented. And while we are the category leader, we have around 6% market share, so so much more upside. And we also, our stores are approximate to only 40% of the car park population. So still so much inherent growth to grow our business, but still benefit from the tailwinds that you talked about.

And I think, you know, one thing I always think about and frame when talking to people who knew the story, there's a lot of different outlets someone can go to to get an oil change from dealers to independent repair garages to tire installers to the quick lube channel. And, you know, I think obviously the convenience and quick, easy, and trusted service, some things you highlighted. but what else does attract someone to the QuickLube channel and to Valvoline in particular? Because obviously the name brand recognition is very important for people.

Yeah, Valvoline, the origins are 160 years old. It is denoted for quality. But for us, every technician starts with 270 hours of training, and that's regardless if it's a company or a franchise-operated location. We use the SuperPro process and technology, which ensures a very consistent process and service delivery every time. An oil change comes with an 18-point safety check, filling tires, checking lights, wipers, filters. These are things that customers come to rely on, and many times customers want eyes on their vehicle before they start a holiday drive. or a busy work schedule, so what pulls people is really saving time, but also that consistent experience that they trust with one of the biggest assets on their family's balance sheet. 80% of people use a vehicle to get to work, so a vehicle is essential to an American household.

Excellent. And, you know, when I look at the framework for the broader market and the growth going forward, it lends to me that there's tremendous white space opportunity. And I think about the company's stated target of 3,500 locations, your target of reaching, I think it's 2,900 by the end of 2028. And then if you think about it there, I think the cadence you're expecting to open is about 250 stores per year. So that implies somewhere in the early 2030s, you're getting to your white space potential. Do you see the opportunity, you mentioned you're only in 40% of the car park now, to continue expanding that white space potential?

Yeah, I'll take that one. First, I'd like to give a bit of context around the 3,500. That number was first mentioned around four years ago. At that time, the company had about 1,750 stores, and so that implied a doubling of the store population over the course of time. And since that time, we've added a significant number of units. We're just under 2,500 right now and moving towards the 3,500 mark. When we talk about the potential for the network, we really think of it as 3,500 plus. The 3,500 is a milestone, but it's not an endpoint. And we're marching towards that milestone with an eye towards continuing to grow. For us, it's all about the profitability and the return on invested capital that is brought from adding a new unit, acquiring an existing unit, and our franchise partners think the same way. It's not been that long ago that our larger franchise partners signed new development agreements and committed over a billion dollars of capital to the store network and their own businesses. These are well-capitalized, very long-term franchise partners who have, frankly, reaped the benefit of being a part of this brand and a part of the network and want to continue to do so because they see the returns. They see the growth opportunities. And so, you know, really we're continuing to be on that journey. And there's still, as you said, a lot of white space. Lori gave you the statistics on that. We just see a ton of opportunity going forward. And, you know, while I don't want to overplay it or overstate it, you know, there are also some opportunities for, you know, at least potentially mobile adjacencies. We're doing some test and learn in that space right now, ways to broaden our scope and our reach of customers, potential customers, through a mobile solution. Again, we're not there, but it's something that we're testing right now in a couple of markets.

It's interesting you bring that up because the mobile service, I think, is the ultimate chip to convenience because then they don't have to come to your store, you've come to them. And I don't think the company acquired is largely the brakes. So are you limited in the services? Because obviously you can do an oil change remote, you know, and you can do brakes and whatnot. But how does that work? Does it limit the menu that you can do?

I don't think so. I mean, we are in early stages, as Kevin said, but there's a number of maintenance items that we can provide mobile we obviously you know we have to make sure from a safety and a training and a consistency standpoint it's a it's the same or better experience than what they're getting in the store but in part of it is making sure that you upset the vehicle that's coming to do the service with all of the requisite equipment in order to perform that in a very high quality way yeah it's a very interesting channel I see a lot of that on YouTube and Instagram of the mobile mechanics

and I'm always interested by that so we shift about some of the KPIs for the business historically car counts have been a big focus and I think more recently as you're thinking about densifying markets maybe car counts is less of the focus and you're looking more at the return on capital or invested capital in those markets. So how should we think about that? I guess just as a framework, what is your mature stores do on average for oil changes per day?

Sure, I'll take that one. Our mature stores across the network are north of 50 cars per day, which is significantly higher than I would say the quick lube averages across the entire space. And you're right, we're very focused on return on invested capital. When we look at a new unit, whether it's a ground-up unit or a potential acquisition. We run that, and we help our franchise partners run those through very consistent filters to make sure that we're making the best decision from a location perspective, from a cost perspective, and ultimately from a returns perspective. It has to fit that lens before we'll move forward with a new location or an acquisition. So that's very important. We've been focusing some on oil change per bay. We're optimizing the mix between two and three bay stores that we build. That's part of our overall CapEx optimization approach. And so ensuring that we get that right number of oil changes per bay as a store matures from when we either buy it or build it is also really important. New store ads continue to be a tailwind. We've added a lot of new stores, Breeze being a more recent development in that. These stores are are immature, and they climb a maturity curve over the course of four to five years. And that maturity curve creates a tailwind for us from a transaction perspective, from a margin perspective, and obviously, you know, it'll grow car accounts, but it also improves profitability along the way, which is really important. In terms of some of the support for that, you know, we've talked a bit about a national ad fund, which is a new thing for us. We're still very young in that process, but now that we have achieved that 25-ish, 100-store footprint, it's efficient to do that. So we're moving down that path with company and franchise. Our marketing has become much more sophisticated. It's not one-size-fits-all. It tends to be tailored and targeted. All of these things help support transaction growth across the network. It's the right offer at the right time for the right customer in the right place. And that's super important to growing our transaction footprint, both, frankly, in immature stores as well as our mature stores, which also will continue to grow.

Valvoline's been reminding me that I have some oil changes I need to get done on my vehicle, so I'm going to have to go when I get back home. So the next one is customer retention, right? And so that's an important factor, especially when, as we discussed previously, there's a lot of outlets that one can go to. So as we think about the new customer you're acquiring, where are they coming from? How old is the vehicle they're bringing to you? And on average, how long do they stay a customer with that same vehicle?

Yeah, you know, I think the point around customer retention is so critical to our model and something that I think we're very proud of. So within our business, about over 80% of the customers we see are guests that are returning to have service with us again. Now, when we look at where we get new customers from, it really comes from the broader car park. When you look at where the broader population gets their oil change today, about 70% to 75% of them are still going to a dealer or a general automotive service provider. And when we open a new store or when we go out and acquire new customers in existing stores, 70% to 75% of them are coming from that channel, those channels. We do also take from the quick lube market, but it tends to be less of a factor, a minority of the factor. And so when we do acquire a customer, it looks like the average customer that lives in that car park vicinity. So the majority of our customers come from within 10 minutes of one of our locations. and so you can look at the car park in that location and the customers we acquire look like the population and demographic of the market.

Excellent. Okay, so shifting on to some of the ticket drivers you have. So we touched upon it previously, but premiumization is just a long-term tailwind and it's both the shift from conventional to premium but also within premium from synthetic blend to fully synthetic. So can you talk about where your premium mix is today and what kind of opportunities you see going forward? Because I think, you know, previously you had mentioned the potential somewhere in the near future to come out with a higher premium option. So just the opportunities that exist there to continue driving tickets.

Sure. Today we have about 80% of our oil changes are what we call premium. And that is a combination of full synthetic and synthetic blend, roughly split equally. And the tailwinds that come are from OEMs as they come out with their new vehicles, creating vehicles where they require a full synthetic lubricant. But when you look at our penetration of full synthetic, it's higher than what the car park would require. And that's because the age of the vehicle is getting such that high mileage vehicles, customers are really trying to take care of those vehicles to maximize or extend the life as much as possible. So when a customer has a vehicle that is getting higher in mileage, and even some that are doing it preemptively because they just want to give more TLC and maintain their vehicle at a higher level, they will upgrade from our all-climate sort of lowest-tier oil change, which is still a very high-quality lubricant, to a synthetic blend or to a premium synthetic. And when you look at the car park evolution and the number of cars that are being introduced today or sold today that require full synthetic versus the cars that are 20 years old or whatever that are retired, it creates a tailwind into the full synthetic of about 3% every year. Now, not all of those are coming from conventional because some of those customers had already been trading up. But that is a big tailwind that we're continuing to see and that we will continue to see, as I mentioned, if half of our 80% premium are full synthetic, we still have quite a bit of penetration left to go. But then we're looking at the next horizon of premiumness. Our supplier has come out with a product that they advertise quite heavily during the PIPA championship, which is Protect and Restore, which is a premium full synthetic. And we have customers who ask for it today. And we know that, again, customers are doing all they can to preserve the value of an asset. And so they're investing, and it's not that much more of an investment on an annual basis to trade up into a premium full synthetic. So that's something that we see on the horizon that we haven't fully contemplated in our numbers, but we are currently talking and testing some things to make sure that our teams can present the benefits of it. That's the most important thing, is that we build trust with the consumer by offering them choice, by educating the customers, and then letting them decide what they want to do with their vehicle.

And it always strikes me as worth repeating how sticky this behavior is. When somebody goes up to premium, they generally never go back down, even if the car doesn't require it.

Very rarely do they trade back down.

And that's usually due to the presentation of it, right? You have a higher mileage vehicle, second largest asset most families own, so you want to maintain it. And even if the ticket goes up, it's an infrequent purchase, so people will accept the higher prices.

That's right.

Another ticket driver is, of course, the non-oil change revenue. For anyone in the audience who's not familiar, Valvoline provides other services such as changing of batteries, cabin, engineer filters, something of the sort. The attachment rates there have been really great. If we look at your top performing stores, what are they doing differently from a training or a presentation perspective that's getting that attachment rate so high, and what can we learn from them?

Sure. I think execution consistency is key. Every technician gets the same initial 270 hours of training. The super pro process lives in every store. It lives in our point of sale system across the entire network. But the execution of that process in a very consistent way is what separates out our top stores from stores that maybe aspire to be better. And as you look at that, it's definitely about doing a consistent thing every time, performing that 18-point safety check every time, even if you're busy, showing the guest the part, the cabin air filter, the result of the battery test, the engine air filter, so that they can become educated about the condition of those and then make that educated choice around that. And again, doing that the same way every time and in a way that's not a sales pitch, but here's an opportunity to better maintain your vehicle if you want to do so. I think also another tier is explaining the OEM services. We do offer certain services that the OEM recommends either every certain number of miles or every certain amount of time that passes. And being able to explain those services to the guest, show them the benefit of those, and also show them exactly and specifically what their OEM recommends and when, so that they can be an educated consumer and make the choice. Those all come into play. It's a very intentional process. I think part of what we do really well is the training, staffing consistency, which is also really important, and product availability. So don't present a service or a product to a guest that you don't actually have in stock. That's not a good look. And so being able to do those things. And, you know, we often get asked about, well, would you add other additional services? And, you know, things that we can do in the context of an oil change, in the context of providing quick, easy, trusted service to the guest that's very consistent, very repeatable, builds a lot of trust. Those are the things that we want to do. It's not about adding services for the sake of adding services. We don't want to do that.

And, you know, the presentation is very real and very tangible. When someone brings out your dirty filter and you see how dirty it is, it's a very real reason for them to purchase it.

And the reality is the difference between great and okay is they show you an engineer filter side-by-side with a clean one. When they don't show it to you next to a clean one, you're less likely to know how dirty that is. Second, they pull a cabin air filter every time. And then the third one is the retention of our team and their ability to understand what the OEM services are and be able to explain those very easily but in a non-pressured way to customers. That's the difference between first quartile and average.

Got it. Got it. Okay. Then switching to acquisitions, so Breeze Auto Care, big acquisition it did. We're going through the integration phase right now. Can you talk about how many stores have been converted to the valuing platform right now and just how those stores have been performing relative to expectations?

Yeah. I mean, Breeze Auto Care, while it makes up less than 10% of our stores and our sales, it was the largest acquisition that the company has done in its history. And And we couldn't be more pleased with the progress that we've made so far. The performance of the Breeze business on all financial metrics has been ad or better than what we would have expected. And I think when you buy something that's large, you're hoping for the best, but you always assume that something will go awry. At the end of Q3, we talked about the fact that we had converted 12 of the 160-plus stores in the portfolio. We really focused on stores that were stranded after the FTC required divestitures because that allows us to gain SG&A advantage and that was always part of the plan. But when we look at the performance of those stores relative to what we would have expected, they're actually performing better. And I say better on a transaction basis. That's the real piece of it. Ticket typically always can do better and they have been performing very well, but transactions usually the test of how much you want to ramp. And as you'll remember, the thesis on the Breeze stores is the value comes by taking their average revenue per sales of $1.1 million up to our average of between $1.7 or up. And so transactions are a big drive to get that. So so far so good, but really early days. We have seen some softness in markets that we didn't convert where we've had to raise prices. So the elasticity that we're seeing with Breeze is probably a little bit higher than with the Valvoline brand. And then I think we've been really pleased on some early delivery of SG&A savings that we had planned. So overall, I think we couldn't be more pleased with the performance. I would say on the conversions, we've really been trying to figure out what's the difference. We do acquisitions every year, about 30 to 35 new units. on the company side come from acquisitions. The difference in the Breeze piece is we did wait a while to start the conversion so we could really engage the team and let them understand and appreciate our culture. I think when we did that, as we've converted stores, we have not had the attrition that we typically see when we close and convert a store right away. So I don't know if we'll take that approach to independent one or two. operator, one or two store operators. But for us, the approach we've taken with Preeze has been really positive.

Excellent. Yeah, I'm looking forward to see the platform there. I think it's a great opportunity. I think switching gears a little bit, we'll talk about some of the more macro themes. I'm sure it's been the topic of much discussion in your investor meetings today, and I think it's top of mind for people and definitely very timely. But the oil supply and pricing environment, can you talk about maybe the state of supply environment right now for finished lubricants, how supply chain is adapting to some of the shortages, and then maybe, at least in my mind, Valvoline sits in a different position than other players because you have such strong relationships with your supplier. So maybe can you talk about that a little bit as well?

Sure. I think everybody's very aware at this point that just due to the length of the conflict, About 20% of the world's oil supply used to go through the Strait of Hormuz, and that's much less than that today. As we look at how that impacts us, the primary impact that we're seeing is really around Group 3 space oil. Some of that is due to the fact that there are some Group 3s manufactured in the Middle East that aren't moving very much, some but not much. And a lot of it, though, is related to that choke point in getting crude to Asia, primarily South Korea, where a lot of Group 3 base oil is made. There's also been some tradeoffs around things like jet fuel and diesel fuel that have impacted supplies. Well, just the refiners maximizing their own mix. So all of that said, and Group 3, just as a reminder, is the primary ingredient for full synthetic motor oil. As we look at that, though, today, nothing has changed from our Q3 earnings call. We don't see, you know, we don't have any supply constraints today, and we don't see any coming in the near term. You mentioned it. We have a strategic relationship with our supplier. At one point, we were part of the same company. It's been several years since that's been the case. But they're now part of the Aramco family. and the fact that they have been in the motor rail production business for so long, the lubricant business for so long, means that they have established networks that few in the industry can compare to. And I think a misconception is that because Valvoline Global is part of Aramco, they're obligated to buy all their product from them. That's not true at all. It wasn't true before the transaction. It's not true now. they are out there finding the best product to do what needs to be done to supply their customers, of which obviously we are a very large one. So that does help us. So our scope and our scale, the strategic supplier relationship, all good. We are singularly focused on making sure that every guest gets the product and the service that they need when they come through one of our bays. And nothing has changed around that. The execution at the store level is still at a very high level. And at this point, the supply piece, it's a distraction, I think, for the world, certainly for our market. But we have a lot of confidence that, again, for now and for the near term, we will have purity of supply for our customers.

And as we think about supply constraints, obviously cost and price comes into the question here. So, you know, can you talk about the cost increases that you've experienced year to date? And I think as we sit here today, maybe it's fair to assume that we might see some cost increases going forward as well. And then, Laurie, I think on the last quarter's conference call, you mentioned that even if everything were to change today and we go back to a pre-conflict sort of environment for supply, the supply chain for base three would still take a long time to get up and running. And so how could that impact the cost environment as well?

Yeah, I'll cover the second part and then come back to cost, but, you know, let's assume that the straight open today, that doesn't mean that immediately we're back in business with, you know, full supply chain and costs starting to come down. Given the restart that would have to happen and the length of time to get things through the straight up for moves to the next step in the supply chain cycle, you're looking at four to six months in order for supply to get back into normal bounds. And that's assuming that there isn't any major infrastructure damage, which there has been to some suppliers outside of our scope or outside of the ones that we work with that will take longer to mediate. But you're looking at four to six months once the strait is fully open for group three base soils to be back flowing in the way that they were pre-conflict. So that'll take some time. So what have we seen from a cost standpoint? If you take 20% of the global supply out and you further constrain the Group 3, there's a few things that have happened. One, people start to look at ways to get other substitutes, not from Korea on Group 3. There are several. Re-refined oil is a new one that's growing. But you also look to make trades and formulations to trade off Group 3 with Group 2 such that demand is lower. But at the end of the day, prices rise, and that's exactly what we've seen. And we talked in Q3 about how we had started to see some of the pricing, some of the cost increases, and that we expected that the peak to hit us in Q4, the peak that we could see at that time, would be 60% higher than pre-conflict. I would say we saw about a quarter, a third of that in Q3, and we started to see that continue to grow. We expect by the time we are, you know, finished with Q4, we will see the full 60%. And then we have to think about what's going to come in Q1 as the continued constraints, you know, remain. The way that we're looking at it we have to look at it in two pieces. One is on the company store side, how do we pass and what do we pass through to the consumer? On the call, we talked about that 60% increase in finished lubricant as it relates to our ticket because lubricant is a piece of the cost but not the total. You're looking at a $5 to $7 per oil change cost impact that we have taken already with consumers on the company side. So we actually did that earlier than our historical practice has been. And part of that is because since 2022, when I think many who followed us would have said we were late to make pricing changes, we put in some capabilities and some process, and we, I think, are more fully ahead of how do we make pricing changes when we see the opportunity to do so. Not just the necessity, but the opportunity. So as we saw costs starting to forecast to be up, we knew what actions we would take, and we took them, and we ended up being a little ahead of it. We don't anticipate and haven't needed to make any other pricing changes for the quarter. We're evaluating, based on where costs might go in Q1 and beyond, what our options would be. So we're, I think, continuing to stay ahead of it. But that's on the company side. on the franchise side we pass and have had a history of passing costs through up and down on a penny basis to our franchisees and we had some sort of historical operating practices around depending on the magnitude of the cost increases or decreases there was a timing so sort of expectations of when those would pass. The reality is, is the costs were moving so much more quickly in Q3 and moving more into Q4 that we had to engage our franchise partners to talk about changing our normal mode of operating. We normally follow the base oil index. There's a disconnect between actual cost and the base oil index based on where the spot market is and where the market overall is. And so in order to ensure we were passing costs through again on a plenty basis we needed to change that practice so a we've been sharing more of the forecast with them so they can incorporate it into their planning for pricing changes and or any cost investment that they may want to delay and that allows us to shorten that gap or that time frame but that is a change in practice that we were in the process of making as we finished our Q3 call, and I think that will serve us very well. It doesn't mean that the timing will always be lined up day for day. So as costs go up and if they go up faster than we forecasted, there might be a lag, but we've been able to get that time lag shorter with the support of our franchise partners and giving them more visibility of what's coming so they can plan for it.

Perfect. I think what I would add to that is while we will see impact because of that process change that we've been working with our franchise partners on in Q4, that was included in our full-year outlook that we talked about on the Q3 call, we feel good about where we are on a go-forward basis post-Q4 in terms of that pass-through. As Lori indicated, there's always going to be the potential for some timing differences just because of process and updating prices in the systems and all of that. But the objective is to get that to be as tight as possible, as quickly as possible.

Well, as we approach time here, we have four questions we're asking every company at the conference. They're supposed to be kind of a quick hit, yes, no, maybe, same, better, or worse. Feel free to opine if you want. But the first one is on the health of the consumer. So as you think about the second half of the year relative to the recent results, You expect them to be the same, better, or worse, and I think maybe fiscal year might be better. I mean, I'm sorry, calendar year might be better than fiscal year for you guys in June and fourth quarter.

Yeah, what I would say is when we look at the health of the consumer, we would expect it to be the same, maybe slightly worse. And partly we base that on some of the softness we started to see in Q3 with the consumer and our growth, and we saw that continue as we've continued into the fourth quarter. And some of that is, I think, driven by macro concerns. Gas prices are up. Miles driven are down. That affects transaction timing, but also people being stretched. So preventative maintenance is something they know they need, but the ability for us to acquire new customers getting tougher in this environment. So overall, we see a lot of resiliency with our customers, but there is some softness that we're seeing. So we would say the same, maybe slightly worse, as we look forward through the rest of the calendar year.

And then pricing, I think I know the answer to that one. Higher. And then last one I'll ask you is AI. Do you expect any efficiencies in AI in 27 versus 26?

So we've had a lot of efficiencies already using AI. I mean, we are not an industry that is going to be transformed with AI, but there is efficiency in software development and marketing and then in just more in the G&A side. So will it be a step change improvement? No, but we'll continue to get efficiencies using generative AI and just generally.

Well, Lori and Kevin, thank you very much. I appreciate it.