Yahoo Finance Valvoline Inc (VVV) (Q2 2024) Earnings Call Transcript Highlights: Strong Growth and Strategic ...
System-wide Store Sales: Grew over 13% to $746 million.
Adjusted EBITDA: Improved 21% to $105 million.
Adjusted EPS: Increased over 60% to $0.37 per share.
Net New Stores: Added 38, bringing year-to-date additions to 76.
Share Repurchases: Approximately 1 million shares, returning over $40 million to shareholders.
Same-Store Sales Growth: System-wide growth of 7.7%.
Adjusted Net Sales: Grew to $389 million, a 13% increase over the prior year.
Gross Margin Rate: Expanded from 36.8% to 37.6%.
Adjusted Net Income: Increased 20% to $48.3 million.
Total Network: Grew to 1,928 stores, an 8% increase over the prior year.
Cash Flows from Operating Activities: Year-to-date were $92.1 million, a decline of $81 million over the prior year.
FY24 Guidance: Same-store sales growth expected between 6% to 8%, with net revenue of $1.6 billion to $1.65 billion, and adjusted EBITDA between $430 million to $455 million.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Valvoline Inc (NYSE:VVV) reported a 13% increase in system-wide store sales, reaching $746 million.
Adjusted EBITDA improved by 21% to $105 million, and adjusted EPS increased by over 60% to $0.37 per share.
The company added 38 net new stores in the quarter, bringing the year-to-date total to 76 new additions.
Valvoline Inc (NYSE:VVV) completed a $1.6 billion share repurchase authorization, returning significant capital to shareholders.
System-wide same-store sales growth was strong at 7.7%, with non-oil-change revenue being the largest contributor to this growth.
Negative Points
The company experienced a choppy start to January due to weather events, impacting business operations.
Year-to-date cash flows from operating activities declined by $81 million compared to the previous year.
Implementation of a new ERP system caused delays in billings and increased accounts receivable, expected to normalize in the second half of the year.
Valvoline Inc (NYSE:VVV) expects to report a material weakness related to the ERP system implementation, with remediation planned by fiscal year-end.
While adjusted net income and EPS showed significant growth, the company noted that gross margin labor leverage is expected to moderate in the second half of the year.
Q & A Highlights
Q: What was the reason behind trimming the upper end of the comp sales guidance range? A: Mary E. Meixelsperger, CFO of Valvoline Inc., explained that the adjustment was to set expectations for consistent performance in the second half of the year, similar to the first half. The adjustment was not indicative of any deceleration observed in Q3. The company is also mindful of the strong transaction growth from the previous year, which could affect comparisons.
Q: Can you discuss the potential for new buyback capacity and how it compares with other capital allocation priorities like new store growth or acquisitions? A: Mary E. Meixelsperger, CFO, reiterated that Valvoline's capital allocation priorities start with growth through new store builds and acquisitions, followed by maintaining a healthy leverage ratio on the balance sheet, and returning excess capital to shareholders through share repurchases. The company is currently at the higher end of its leverage goal and will continue to evaluate opportunities for share repurchases in consultation with the Board.
Q: How did the battery offering perform during the winter months, and what are the expectations for its future rollout? A: Lori A. Flees, CEO of Valvoline Inc., noted that the battery service is complex due to the variety of batteries and storage requirements. The company is working with a last-mile delivery partner for efficient battery delivery and is focusing on improving testing devices for accuracy. Valvoline sees further opportunities in battery services and plans to expand this offering.
Q: What impact has the slower adoption of electric vehicles (EVs) had on discussions with franchise partners? A: Lori A. Flees, CEO, mentioned that while the current sales pace of EVs has moderated, the long-term forecast for EV penetration remains unchanged. Valvoline continues to research and develop services suitable for EVs. Franchise partners in regions with lower EV sales see little impact, focusing instead on maximizing returns from the internal combustion engine vehicle market.
Q: Are there any observed effects of inflation or economic downturns on consumer behavior, particularly among lower-income consumers? A: Mary E. Meixelsperger, CFO, confirmed that Valvoline has not observed any significant impact of inflation on consumer behavior, including no evidence of trade-downs or reduced retention among lower-income consumers. The company continues to monitor the situation closely but has seen consistent customer engagement across income levels.
Q: Could you provide details on the internal control issues identified during the ERP system implementation? A: Mary E. Meixelsperger, CFO, explained that the issues were primarily related to information technology general controls, including user access and monitoring controls. The ERP system went live on January 1, driven by the need for a platform more suited to retail operations following the sale of the Global Products business. The company is focused on remediation plans and enhancing system capabilities for long-term benefits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
