Valvoline Reports Q3 2026 Results: Full Earnings Call Transcript

Valvoline (NYSE: VVV ) held its third-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Full Transcript OPERATOR Hello everyone.

Thank you for joining us and welcome to Valvoline's third quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.

I will now hand the conference over to Elizabeth Clevenger, Investor Relations. Elizabeth, please go ahead. Elizabeth Clevenger, Investor Relations Thank you. Good morning and welcome to Valvoline's third quarter fiscal 2026 conference call and webcast.

This morning Valvoline released results for the third quarter ended June 30, 2026. com. 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 Fleece, our President and CEO, and Kevin Willis, our CFO.

As shown in the accompanying presentation, 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.

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 appendix. With that, I will turn it over to Lori. Lori Fleece, President and CEO Thanks, Elizabeth, and thank you all for joining us this morning. We delivered another good quarter with sales and profit growth in line with our expectations.

The team continues to manage the business effectively through the changing supply and macro environment. Our results demonstrate the strength, resilience, and growth in our business. On the top line, systemwide store sales increased 19%, crossing the $1 billion mark for the first time in a quarter. Systemwide same-store sales grew 8%.

Across the system we saw growth in both transactions and ticket, with ticket contributing more than three-quarters of the comp. All three components of ticket—net pricing, premiumization, and NOCR service penetration—contributed. Net price was the largest contributor given the pricing actions that were taken. Similar to last quarter, franchise was above the system average for the quarter.

EBITDA grew faster than sales with SG&A leverage improving. Before Kevin talks through the financials, I want to spend a moment on the operating environment as it relates to supply. The closure of the Strait of Hormuz has disrupted the global oil supply chain and, specific to our category, has constrained the supply of Group 3 base oil, a key component of full synthetic lubricants. We expect this industrywide supply constraint to persist over the medium term and beyond the initial reopening of the Strait.

However, we are in a differentiated position. Our scale combined with the strategic relationship we have with our supplier gives us reliable access to product. Absent a significant change in the environment, we do not have supply concerns today and we do not anticipate any in the near term. That said, constrained supply across the market has elevated finished lubricant costs.

We saw costs begin to rise in the third quarter and they continued to increase as we moved into the fourth quarter. Based on the current forecast, we expect finished lubricant costs could be approximately 60% above where they were in March. While that sounds significant, let me clarify that means we expect a total increase of approximately $5 to $7 per oil change depending on the lubricant type relative to the March period. Our teams are actively managing this cost dynamic through consumer pricing and operational discipline.

Both company and franchisees have taken pricing actions. In the third quarter, while we wait for the Strait to fully reopen, we are managing through the current environment effectively with both the short and long term in mind. On the customer front, we feel good about the overall health of the business across the system. We saw transaction growth in the quarter and broadly no signs of trade-down or deferral of services.

That said, we did see pockets of pressure in June with more moderate growth among lower-income households and some softness in NOCR penetration similar to what we typically see in the summer drive season. Overall, our customer has remained resilient and we continue to see steady demand for the non-discretionary services we provide. But we are watching consumer behavior closely across the network and we continue to invest in strengthening our brand and attracting new customers. As the summer drive season got underway, we launched a new marketing campaign, the Ride Wrangler.

This fresh platform reinforces Valvoline as a trusted preventative maintenance partner. Anchored by the tagline "Change wisely," the campaign increases brand relevance and consumer engagement while highlighting the quick, easy, trusted service we offer. It can be seen and heard across our full marketing mix from national advertising to local marketing, giving us broad reach as we invite more drivers to change wisely and choose Valvoline. A quick update on Breeze: The overall performance of the Breeze business continues to be at or above expectations, and the overall deal thesis and return expectations we shared at the December investor update remain intact.

As of Q3, we have converted 12 stores to the Valvoline Instant Oil Change brand, and while it's still early, the performance of the converted stores is slightly ahead of expectations. Turning to network growth, we added 47 net new stores in the quarter, bringing our overall network to 2,456 stores. We continue to have a strong pipeline for both company and franchise additions. In summary, we delivered a good quarter.

I'm proud of our team's strong execution as we navigate a challenging macro backdrop. We remain focused on delivering quick, easy, trusted service to our guests while creating value for our shareholders. The actions we're taking to mitigate the current environment are strengthening profitability across the system, enhancing free cash flow generation, and positioning Valvoline for sustainable long-term growth. With that, I'll turn the call over to Kevin to provide more detail on our Q3 financial performance and rest-of-year guidance.

Kevin Willis, CFO Thanks, Lori, and good morning everyone. A summary of our financial results is included in the presentation. Let's talk through the highlights. We delivered top-line growth in line with our expectations with net sales of $545 million, a 24% increase over the prior year.

This growth reflects a combination of continued momentum in our core business and the contribution from Breeze, which performed in line with our expectations. The gross margin rate of 40% decreased 50 basis points year over year. We saw favorability in product costs this quarter offset by higher other service delivery costs, including the impact of new store depreciation. Excluding the impact of depreciation, the gross margin rate would have improved by 10 basis points.

As Lori mentioned, we continue to see finished lubricant costs increase. Our focus remains on protecting gross profit dollars while maintaining reliable supply across the system. The product cost favorability we realized in the quarter reflects pricing actions taken slightly ahead of the impact of finished lubricant cost increases, and we have taken additional pricing actions as lubricant costs have continued to increase. It's also important to recognize that finished lubricant costs are currently increasing at a faster rate than movements in the base oil index would suggest.

While the index remains a useful market reference point, supplier costs today reflect broader industry conditions, including tight Group 3 base oil supply, inventory replenishment, and other factors across the supply chain. As a result, the index is understating the cost pressure the industry is seeing in the market today. SG&A as a percent of net sales decreased 90 basis points year over year to 17% from a combination of increased transactions from the summer drive season and continued cost discipline across the business. We remain focused on improving operating leverage while continuing to support the growth of the business and navigating the macro environment.

57 per share. We had planned for about 100 basis points of EBITDA margin compression for the full year and now expect closer to half that amount. Year to date, operating cash flows improved $105 million to $285 million and free cash flow was $112 million, an increase of approximately $93 million over last year. We used a portion of that cash to pay down debt in the June quarter, reflecting our continued focus on strengthening the balance sheet.

8 times on a net debt to adjusted EBITDA basis, a sequential decline of approximately 10%. We remain focused on bringing leverage back within our target range and restarting share repurchases. 8 million based on the current balance. We delivered a strong quarter reflecting disciplined execution, profitable growth, EBITDA margin expansion, and improved free cash flow.

Let's turn to our outlook for the remainder of the year, which includes our expectations for the fourth quarter. 5% to 8%. This increase reflects the pricing measures we've taken so far. 75 per share, respectively.

While the macro and supply environment remains dynamic, the fundamentals of our business have not changed. Preventive maintenance is a non-discretionary service, our customer has remained resilient, and our team continues to execute well. We are confident in the durability of our model and our ability to deliver profitable growth and long-term value for our shareholders, even as we navigate near-term cost pressure. I'll now turn it back over to Lori to wrap up.

Lori Fleece, President and CEO Thanks, Kevin. To wrap up, we delivered a strong quarter. I'm proud of how our team continues to manage the business effectively through a changing supply and macro environment. We remain confident in the resilience of our business model and the durability of customer demand.

I want to thank our team members and franchisees. Their dedication and execution are what enables us to keep delivering VCLASS service to our guests quarter after quarter. As we look forward to the end of the year, we're also celebrating two important milestones. This year marks the 40th anniversary of Valvoline being in the retail services business and the 10th anniversary of becoming a stand-alone, publicly traded company.

Over the past decade alone, we've grown our network from just over a thousand stores to nearly 2,500—a testament to the strength of our model, the long-term value we've built for our shareholders, and the passion of our people and franchisees. I'll now turn it back over to Elizabeth to begin Q&A. Elizabeth Clevenger, Investor Relations Thanks, Lori. Before we start the Q&A, I want to remind everyone to limit your question to one and a follow-up.

With that, the operator can please open the line. OPERATOR We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand.

To withdraw your question, press Star 1. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Mark Jordan with Goldman Sachs. Mark, please go ahead. Mark Jordan, Analyst at Goldman Sachs Hey, good morning. Congrats on another great quarter here and thank you for taking my questions.

To start, can we just dig into the full-year guidance a little bit? You know, I think it implies 4Q comp trends are roughly similar to 3Q, maybe a little bit better there, but that EBITDA margins are in the 25% range and, you know, understanding there's some seasonality in 4Q, but, you know, what are the big drivers of the sequentially softer margins there? Kevin Willis, CFO Hey Mark, it's Kevin. Thanks for the question.

I would say that we're really pleased with how the team has executed year to date and continues to execute in Q4. As I think we can all appreciate, the macro remains very dynamic. That said, the fundamentals of the business haven't changed. We're very pleased with where we are as we look at Q4.

Really, the math is all around what we have baked into the full-year guide around product cost increases, us covering those with price that we started taking in the June quarter and continued into this quarter as well. And it's really about our focus on protecting gross profit dollars, and the impact of that is, as you correctly calculate, at the midpoint of the range that would imply 300 to 400 basis points of margin compression in the September quarter, and that would be really all product cost—related impacts. We don't really see any other significant impacts to the business.

As we look at SG&A year over year, we would expect to gain some leverage on the SG&A front, as we have been doing throughout the course of the year. We're managing costs very well when it comes to that. So it really comes down to, you know, what Lori mentioned: as much as a 60% finished lubricant cost increase, $5 to $7 per oil change, and making sure that we do what we need to do to cover that in the quarter. So that's what's driving the margin.

Mark Jordan, Analyst at Goldman Sachs Excellent, thank you very much. And then just as one follow-up, you know, can you talk about the SG&A leverage in 3Q? It looks like the largest benefit maybe came from the other G&A expenses. Can you break down what's included in that bucket and maybe how we should think about it in 4Q?

Kevin Willis, CFO Yeah, just as a reminder, Q3 tends to be our strongest quarter. Every year we drive more transactions. It's the peak of the summer drive season, and so that does tend to help us on the leverage front. The team did a really nice job from an execution perspective around SG&A.

We've been really focused on that since we got through and past making the SG&A investments that we needed to make in the business. And really, it's been a concerted effort to manage our overall cost profile across the board, and the team's done a really nice job with that. Mark Jordan, Analyst at Goldman Sachs Excellent. Thank you very much, and congrats again on a great quarter.

Kevin Willis, CFO Thanks, Mark. OPERATOR Your next question comes from the line of Stephen Ciccone with Citi. Steven, your line is open. Please go ahead.

Arianna Aramsert, Analyst at Citi Oh, hi, this is Arianna Aramsert for Stephen Daton. Thank you so much for taking our question. My first question is, can you provide more detail on the extent to which pricing actions can continue to offset these increases without negatively impacting customer traffic? Lori Fleece, President and CEO Yeah, thanks for the question.

Overall, when we look at, at least on the product cost side, there are two things that we do. One is we try to time pricing increases on the company-store side as well as the franchise product cost pass-through to offset those increases. We always do pricing elasticity work to know exactly what we expect consumers to do. Now, we're not doing this in a vacuum.

The entire industry is facing the same product cost or product constraints that I talked about, and the commensurate product inflation that comes with constrained supply. So we're not doing that in a vacuum. And as you look at the $5 to $7 number that I talked about on a base ticket of $115 on average, or higher for some of our franchisees, that's actually a very small percentage of increase. And given our customers come back to us twice a year on an annual basis, it's not a significant out-of-pocket cost when you compare that to foregoing maintenance and the potential risk that you take for bigger repairs.

So obviously we look at that, and we watch consumer sentiment and we watch consumer return rates, and we watch consumer discount usage. All of those things factor into it as we look at passing price on to consumers. Arianna Aramsert, Analyst at Citi Great, thank you so much. And my follow-up is, despite raising the floor for same-store sales by 250 basis points, the top end of the total revenue remains the same.

So I guess what specific revenue offsets are providing a corresponding increase in the net revenue? Kevin Willis, CFO Yeah. 1 billion.