Valvoline Inc. CEO and CFO Discuss Growth Strategies and Market Opportunities at Baird Global Consumer, Technology & Services Conference 2025

Key Takeaways

TL;DR: Valvoline is poised for accelerated growth w/ a robust network expansion plan, compelling re-franchising strategy, attractive unit economics, and ongoing tech investments to boost margins—all while leveraging a strong brand and customer experience in a resilient industry.

• Growth & Market Oppt'y
  • CEO Lori Flees highlighted industry tailwinds such as increasing mileage, vehicle complexity, and the trend toward convenience fueling robust ticket and transaction growth.
  • Valvoline’s current 5% market share across the U.S. offers significant upside, w/ mature markets reaching 20% and room to expand from only covering 35% of the available car park.
  • Substantial white space for unit expansion, aiming for a network potentially exceeding 3,500 units over time.
• Network Expansion & Franchise Growth
  • Aggressively ramping up growth: targeting 150–185 new units this year, split w/ approx. 100 company-owned and the rest on the franchise side.
  • Strategy includes shifting from 40–50 franchise new units/year to 150/year, leveraging both existing long-term franchise partners and recruiting new ones.
  • Strong pipeline support and infill market oppt'ys will drive margins due to better marketing efficiency and higher returns to maturity.
• Re-Franchising Strategy & Unit Economics
  • Re-franchising deals structured to unlock shareholder value, w/ a typical new unit maturing in 3–5 years.
  • Key insight: Valvoline expects around a 30% cash-on-cash return, translating to mid- to higher teens IRR on ground leases, making the proposition attractive for franchise partners.
  • Innovative incentives (discounts on lubricant costs tied to development agreements) ensure franchisees hit growth targets, protecting overall deal value.
• Acquisition of Oil Changers (Breeze Acquisition)
  • Recent acquisition adds 200 premium locations to the network, offering synergistic benefits by integrating superior marketing, real estate analytics, and fleet sales capabilities.
  • Despite a second FTC review due to a temporary staffing/HSR process change, management is confident of a successful close given the strategic fit and low overall market share.
• Same-Store Sales & Rev. Drivers
  • Valvoline has delivered near 10% compounded same-store sales growth over the past decade and projects a balanced mix of transaction and ticket growth going forward.
  • Drivers include:
    • A premium product mix driven by the natural shift to full synthetic lubricants in new cars.
    • Non-oil-change rev. svcs (w/ significant adjunct upside across the store quartiles).
    • Net pricing improvements through personalized discounting enabled by enhanced cloud-based marketing tools.
  • Guidance for this year is 5%–7% same-store growth, reflecting a normalization from a prior algo of 6%–9% due to moderating inflationary factors and tariff uncertainties.
• Margin Expansion & SG&A Investments
  • Increased SG&A spend in Q3–Q4 last year (driven by tech investments, ERP/HRIS updates, cloud-enabled platforms) is positioned to drive margin expansion from 26% to 29% LT.
  • Although there was a temporary ramp in SG&A, management expects productivity benefits to materialize as these investments lapped, realigning w/ growth in profit outpacing sales.
• Positioning for Evolving Vehicle Maintenance Needs
  • Despite a slower-than-expected EV market evolution (possibly pushed out 5–10 years due to regulatory shifts), Valvoline believes the customer need for rapid, convenient, and trusted maintenance svcs remains unchanged.
  • Preparing to evolve its svc menu to serve both traditional and emerging vehicle technologies.
• Leadership & Operational Excellence
  • CFO John Willis, w/ a long history at Ashland and deep familiarity w/ Valvoline, echoed the team’s focus on leveraging tech and operational capabilities to further drive consistent growth and profitability.
  • Customer satisfaction remains high, evidenced by a 4.7/5 rating across 2,078 stores, reinforcing the brand’s long-standing quality reputation.

Overall, management’s discussion paints a picture of a resilient, strategically expanding biz w/ clear pathways to enhanced unit economics, improved margins, and LT shareholder value.

Call Q&A

• Unknown Analyst: Any observations since you've been in the CEO role for the last 2 years?
  • Lori Flees: The industry is resilient w/ positive tailwinds, Valvoline has built amazing capabilities, and there is significant growth potential w/ only 5% market share.
• Unknown Analyst: Your background? What attracted you to this role?
  • John Willis: I spent most of my career at Aslan, Valvoline's parent co. The oppt'y for consistent growth and the great team and culture attracted me to this role.
• Unknown Analyst: How does your market share compare in dense markets?
  • Lori Flees: In mature markets, we approach 20% market share, indicating significant upside potential. We focus on infilling markets for better returns.