Valvoline at TD Cowen Conference: Strategic Growth Amid Industry Tailwinds

On Wednesday, 04 June 2025, Valvoline Inc. (NYSE:VVV) presented at the TD Cowen 9th Annual Future of the Consumer Conference, outlining a strategic vision marked by optimism and challenges. CEO Lori Fleas and CFO Kevin Willis detailed the company’s growth strategy, emphasizing industry resilience and market opportunities, while acknowledging macroeconomic uncertainties and competitive pressures.

Key Takeaways

• Valvoline operates in a resilient industry with significant growth potential.
• The company holds a 5% market share, with plans to expand through refranchising.
• Macroeconomic uncertainty has not deterred consumer behavior.
• Tariffs are expected to have minimal impact due to supply chain strategies.
• The company aims for a 26% to 29% EBITDA margin expansion.

Financial Results

• EBITDA Margin: Targeted growth from 26% to 29%, despite current refranchising costs.
• Same Store Sales: Previously peaked at 11%, now driven by premium mix and pricing.
• Return on Invested Capital (ROIC): Expected to rise with new refranchising strategies, achieving high teen IRR and 30% cash return on company-owned stores.

Operational Updates

• Store Growth: Aiming for 250 new stores annually by 2027, reaching 3,500 total stores.
• Non-Oil Change Revenue: Accounts for over 20% of business, with room for improvement.
• Cars Per Day: Top-performing stores significantly outpace others; focus on sharing best practices.
• Refranchising: Three current transactions are ahead of schedule, with structured development agreements.
• Fleet Sales: Contributing positively to transaction drivers, supported by new marketing initiatives.

Future Outlook

• EBITDA Margin Expansion: Confident in achieving the target range, with SG&A growth slowing.
• Store Openings: Franchisee agreements expected to bolster growth.
• Pricing Strategy: Focused on competitive positioning and capacity utilization without aggressive promotions.

Q&A Highlights

• Consumer Behavior: No observed trade down or service deferral among customers.
• Tariffs: Anticipated minimal impact due to diversification and cost pass-through strategies.
• Refranchising: Emphasis on supporting current deals to achieve store growth targets.
• Franchisees: Valvoline provides significant support, including real estate and construction management.

For a more detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - TD Cowen 9th Annual Future of the Consumer Conference:

Max, Host: Great. Thanks everyone, for joining us. I think it’s the last, Fireside Chat of the day. I’m pleased to be hosting the Valvoline team on stage for the first time. This afternoon, I’m joined by Lori Fleas who’s Valvoline’s CEO as well as Kevin Willis who is our newly appointed CFO to the company.

We’ve got a buy rating on shares as well as a $40 price target. Alright. So you guys have spent the past couple days speaking with investors. You know, first and foremost, I just wanted to start with, you what do you think is most underappreciated about the Valvoline story today? What do you think is most misunderstood by investors?

Lori Fleas, CEO, Valvoline: I’ll start and then Kevin would be great to give your fresh perspective. You know, with Valvoline, it is a strong growth story and I think it’s a combination of three things that people aren’t getting in aggregate. So one, it’s an incredibly resilient industry to operate in, with a lot of tailwinds that actually, are very attractive. So miles driven is going up that drives transactions, age of vehicle ownership is going up that drives ticket. The OEM recommended mix for premium synthetic is going up, that drives ticket.

And then the shift to convenience actually drives transactions. So there’s a lot of tailwinds in the industry that bode very well for our business. That combined with years of investment to build scaled capability, on top of a very high quality brand, a hundred and almost 60 years old brand now that stands for quality combined with the best in industry experience, rated 4.5 4.7 stars out of five, which is enabled by both award winning training and proprietary technology that ensures consistency across every site. That then you take the combined longitudinal customer data and 2,000 plus store real estate analytics data. Like there’s there’s a lot of capabilities that allow us to drive higher share gains in industry and better than average returns.

And then you overlay that on massive white space opportunity. We have 5% share in an incredibly fragmented market And our stores really only cover about 35% of the population and that would assume that that’s right sized capacity demand which it’s not. So there’s a lot of upside to build and then we have some fantastic franchise partners that have been in the business for more than twenty five years and have doubled their commitment for growth as well as new partners that are bringing new capital to the business and just a lot of enthusiasm for the space.

Max, Host: Yeah, and Kevin, great to have you with us. You just the firm so taking a look at Valvoline with a fresh set of eyes, what are your initial takeaways and sort of where are your priorities?

Kevin Willis, CFO, Valvoline: Sure, sure. Fresh set of eyes but a very long history. Yep. I was with Ashland for many, many years, the last twelve as Chief Financial Officer. And we took this business public at Ashland in 2016, spun it out in 2017.

It was a great business then and it’s only gotten better. Super excited to be part of the team. I mean, what drew me to that, it is a great business but also it’s a great team with a great culture. And that’s a really nice combination. You look at where we play, our market share today is only 5% and this is a company that’s been growing double digits, top line, bottom line for many years in a row.

Same store sales growth eighteen years in a row. I mean there’s a lot of secret sauce in this and it was obvious to me before, it’s even more obvious to me and I’m three weeks on the job here, but I’ve been following this story for a really long time and it’s played out very consistently over the course of time. Pretty much exactly as it should have and as it’s been expected to. And today, we’re at a point of critical mass and as Lori said, we’ve invested heavily in marketing capabilities, real estate analytical capabilities that are so proprietary, nobody else has these things. And it makes it, it’s never easy, but it makes it much easier as we march toward 3,500 stores to help ensure the success of that journey with very low volatility along the way.

The modeling tools are very predictive and they’re very good and those are all the things that really excite me about being here and being a part of this story.

Max, Host: So with the modeling tools being very predictive, think it’s a good segue to speak a little bit about the consumer. Obviously, there’s a lot of uncertainties. I think if there was one word sum up, the past two days, it probably would be that. So, just Lori, what are you seeing as far as the health of the consumer? Are you noticing any changes in their behaviors over the past couple months whether it’s deferrals, whether it’s trade down, maybe lower attachment rates on your non oil change side?

Lori Fleas, CEO, Valvoline: So, Max, it’s something we’ve been watching for because of the macroeconomic uncertainty And what we would say is our metrics are pretty stable. So we don’t see our customer base trading down or deferring service. And some people would say, well, that that seems odd but we’re not really a discretionary, purchase. And I think the trade down consumers are making is the decision to hold on to a vehicle for longer and wanting to maintain that to avoid having to trade up into a new vehicle at current interest rates.

Max, Host: Yeah.

Lori Fleas, CEO, Valvoline: And so I think we’ve seen that for a while now and nothing has changed on the consumer side for our business.

Max, Host: And maybe just going back a little bit, it’s either GFC or the dot com bubble but just curious at an industry level, what typically happens in the quick loop market during softer economic periods?

Lori Fleas, CEO, Valvoline: Yeah, think the biggest impact to our business or transactions is miles driven and so really saw that in COVID. But the reality is it has to be sustained for a long period of time because people do worry about the safety of the vehicle and in softer economic cycles, they’ll choose to drive for a vacation then fly for a vacation. And if you’re taking your family on a long road trip, the first thing you do is wanna go get your vehicle checked and maintained. So even during COVID, you know, the intervals expanded a little bit, miles driven were much lower but people were still coming in to get their car serviced as they were taking to the roads instead of the air. So I, you know, I do think that it does impact a certain profile of customers but we aren’t seeing it in our customer base.

In the 02/2008, ’2 thousand and ’9, you did see a little bit of trade down but not deferral. And you have to remember what the car park looked like at that time, the premium mix of oil changes was much lower. Sure. And the percentage of vehicles that were recommending full synthetic was very low. The car park is different now.

It’s older, it’s more complex. So we’re not seeing it at this time. We’ll continue to watch for it but I think there needs to be more extreme economic circumstances for it to actually have an impact for us.

Max, Host: Right, small wobbles, you’re probably not gonna see it but bigger downturns is if there’s risk is

Lori Fleas, CEO, Valvoline: when that would be. Perhaps. I think the biggest, it’s a bit of a tailwind in the short term that is new car sales go down. That’s when people tend to go back to the dealers with a new car that’s under warranty and as new car sales go down and people hold on to cars longer, they’re in the sweet spot of servicing by, you know, by providers like us and the ticket is larger because the added service requirements of the vehicle are higher.

Max, Host: Right. And so, just on ticket going higher, maybe let’s pivot to tariffs. Just walk us through your cost mitigation and whether there’s anything sort of newer that we should consider since you last reported just on your exposure and what the impact to the business could be in the second half of your fiscal year?

Lori Fleas, CEO, Valvoline: Yeah, we don’t see a significant impact at all on tariffs. Part of that is we have been working to diversify our supply chain and have shifted our ancillary product purchases out of China. But to just step back and think about our cost in the business, the biggest cost is labor. And that’ll always have wage inflation, minimum wage environment pressures, that’s not new. Then you look at lubricants as the biggest part of the product component of our cost and we don’t expect to have tariffs impacts the lubricant side of our business.

So then you go to a much smaller piece which is the ancillary products like filters, wiper blades, things like that. And that will have some impact of tariff but it’s very small and there’s lots of supply options. So the way that we consider mitigating is first looking for lower cost supply routes that, do not have the tariff impact or as much of a tariff impact. And then beyond that, I think the industry has shown that as those industry costs go up, whether for us or others, you end up passing it through to the consumer and price. So we don’t really see an impact on our profit levels for the year because whatever we can’t mitigate, we can pass through and it’ll be very small.

Max, Host: Right, and historically the industry doesn’t take a step back. So whatever you pass through, you’re gonna maintain and work from there.

Lori Fleas, CEO, Valvoline: Yeah, this is not an industry that rolls back pricing. It maintains pricing.

Max, Host: So maybe let’s just now dive a little deeper into your own growth drivers. So when we think about your comp ticket algo, it’s generally comprised of premiumization, non oil change revenues, as well as a few smaller buckets. So how should we think about the ticket drivers for the rest of the fiscal year and then longer term sort of between the three big buckets?

Lori Fleas, CEO, Valvoline: Yeah. I’ll first step back and just say have a healthy business. We’ve always targeted pretty balanced between transaction growth and ticket. On the ticket, there are three main contributors, premium mix which is really driven by the car park, age and the composition of the car park. That’ll continue to maintain a pretty strong comp, tailwind for us consistent with what we’ve seen in the last couple of quarters.

The second is NOCR, penetration. These are non oil change services that we’ve really been focusing on having execution of our team, presenting those things to customers. Last year, we just lapped a pretty big initiative in training and we’ve probably had eighteen months of very strong contribution of non oil change revenue penetration lift. That has come down as we’ve lapped those initiatives but it’s still positive and there’s still opportunity there as we look at by service, by store, there’s lots of opportunity there. And then the last one is net pricing which is a combination of posted pricing and then discounting.

We’ve been we we have always looked at price benchmarking, doing price testing across our fleet really to make sure that we’re priced right relative to the demand in the market and we’ll continue to adjust pricing where it’s appropriate not including any cost transfer.

Max, Host: Sure.

Lori Fleas, CEO, Valvoline: And so that continues to be a positive contribution to comp. This last quarter, it and premium mix were the biggest contributors contributing well over majority and then NOCR being the last. The other one is just optimizing discounting. This is an industry that uses discounts as a way to remind people to service their car. But we have such long tenured customers and data that we can start to optimize because we know what it takes and when to give a discount and when not.

And so that’s by moving our customer data into the cloud, we have more real time analytics and we can optimize that with even greater efficiency. So those are the things that will continue to benefit us over the longer term. But I would expect that some of the drivers on ticket will remain pretty constant for the rest of the year.

Max, Host: And it seems like on ticket, sort of the biggest swing factors we think about your longer term guide, it’s really just on price, right? Like that’s the one piece that’s got the most variability. How do you think about bigger picture what price could look like in a more inflationary period versus if we’re lapping all of this inflation over the past couple of years and pushing through price does become more of a challenge? So sort of what the high end and the low end of the price component could look like.

Lori Fleas, CEO, Valvoline: Yeah, I think I just go back to history, Max, which I think is always a good indication of what the future ranges could be. When I joined the company, our same store sales for the year was over 11% of which about 80 plus percent of it was a ticket and of that, you know, 60% of that was driven by price.

Max, Host: Right.

Lori Fleas, CEO, Valvoline: It then moved to nine and still was the lion’s share driven by ticket and a good half driven by price. So those are some pretty big, you know, price drivers of same store sales growth. In this year, it’s much different and, you know, you’re getting back to more lower wage inflation type pass through. Now we don’t pass, we never look at pricing as a way to just pass through costs. We do that when it’s more extreme.

We are looking at price more in a competitive landscape and based utilization of our capacity. So Yeah. If our stores are busy, we had to ask ourselves if we’re priced correctly. Those are times when you actually look at pricing is when demand exceeds supply. But you also wanna look at competitors in the market and see what they’re doing broadly.

We know what our proposition gives people in terms of time and so that’s something that we take into account.

Max, Host: And it seems like you’re not really seeing any changes on the competitive side. Everyone is still being pretty rational not to pick up and discount in your promotions.

Lori Fleas, CEO, Valvoline: No, we don’t, again, this is a very fragmented market. So there are very few players. In fact, one that has a number of rooftops as we do and they’re a very different proposition than us. Most others have half or significantly less locations. So even when they do create some promotional activity to drive traffic, it doesn’t have an outsized impact on our network.

But we’re not seeing any unreasonable or, aggressive promotional tactics right now. It it is a great business and I think people are continuing to see opportunities for growth in it but we’re not seeing anything out of the norm.

Max, Host: And then on the non oil change side, you’ve done a really nice job growing that business. I think it’s a little bit more than 20% now of your mix. It’s been a big driver the past eighteen months to two years. What’s ahead? What do you have left in the tank?

Because you have made a lot of progress there. So should we see potentially menu expansion? Is it more about just continuing to focus on the service side and picking up higher mix? What’s next?

Lori Fleas, CEO, Valvoline: Yeah, think non oil change revenue is an area that I think during COVID we let get away from us and pulling cabin air filters to show our guests what the health of that filter was for the passengers in the vehicle. And I think a lot of the low hanging fruit was just fixing equipment and making sure there was backup, making sure that we had supplies for the vehicles that we serve, and training our team to follow the process. We still have a very high variability between our top quartile stores and our bottom quartile stores. And it’s not that the top quartile stores are less busy so they have more time, they’re also our highest performing stores. So, you know, it’s also not income demographic driven between the top quartile and the bottom quartile, it ends up being execution of the basics.

Now, all of our quartiles have improved but the top quartile has also gotten higher.

Max, Host: Right.

Lori Fleas, CEO, Valvoline: But the difference is three x between the bottom quartile and the top quartile which tells you there’s still a lot of opportunity in the basics. But we’re also, we can look at the data by store, by service and see where there’s opportunity relative to the cars that they’re serving. And then we dig down and we talk about, you know, what is it that gets in the way of providing those services and how do we block and tackle to get it. But there’s a lot of opportunity whether it be in the visual areas where we visually show the customer and that can include cabin air filters, air filters and battery. Yeah.

To even the OEM services and it’s just about making sure our team can explain it so the customer knows why they should get it. That we show our price relative to competitors who offer it like dealers and they understand the value.

Max, Host: And so, staying on that but pivoting a little bit, when we look at cars per day, the FTDs lay out a lot of the information. The top cohort is significantly outperforming. The bottom cohort, sort of similar to non oil change, both are improving, but the top cohort continues to improve by a greater pace. Is there an ability to leverage best learnings, either through technology or soft data, to continue to get the bottom third or quartile, whichever it is higher? And obviously, not with standing you are sort of where the market is that you operate in but I would imagine that there’s a lot of learnings that you can get from your top operators.

Lori Fleas, CEO, Valvoline: Absolutely. I mean, we’ve talked about our immature stores which by the way, when we do our FTD, we include a pretty big subset of our stores and not all of those stores are at full maturity. And we talk about how our mature stores, we expect to deliver an incremental 70,000,000 of EBITDA. So that does drive some of the difference between bottom quartile and top quartile stores. That being said, we have stores that execute the process with speed and others who execute at the minimum standards.

Yeah. And it is about putting in the right technology. So one of the things that we’ve been doing is making sure that in every store our network, so the WiFi availability supports the, technicians going to the parking lot to scan in vehicles. That starts the service faster. As they pull into the lot, we get things started so that they’re only in the bay for a very short period of time for us to pull and replace the lubricants.

And when you can do that, the speed with which you’re moving people through is very fast. And it’s making sure again, it’s taking the data and looking at stores that are in the bottom quartile, adjusting for age and saying what’s getting in the way of top quartile performance and then blocking and tackling to get to remove those obstacles.

Max, Host: So with that in mind, as we think now about the transaction drivers over the medium term, what do you view to be sort of the key buckets and I think you generally want transactions and ticket to be split roughly fiftyfifty.

Lori Fleas, CEO, Valvoline: Yeah. Well, you know, one of the contributors to the comp is new stores maturing. So so that’ll continue. Then we have fleet sales which is additive on that and a number of our marketing initiatives that we do. And then there’s operational standards around throughput.

So how many cars per bay per bay per day can you get through and where do you have constraints and how do you remove those so you can get one more car a day? And it again, it’s just the operational flow. It’s like an industrial engineering, you know, problem solving that the likes of most QSRs for drive through have gone through in spades. Those are the things that we’re working on to drive throughput. We know that when there are two cars waiting outside each bay, customer will drive up and drive off.

That’s what we have to avoid is we wanna serve all customers when they wanna be served.

Max, Host: How often does that happen where someone drives up and there’s at least a little bit of a wait and they just drive off to whoever else?

Lori Fleas, CEO, Valvoline: Yeah, it’s not something that we’ve shared and it’s actually difficult to measure and we’re trying to use sophisticated cameras and AIs to start to measure that But we know it happens and we have customers who tell us it happens. Now, sometimes we’re lucky enough that it’s a loyal customer and they’ll just come back another time. But we know some customers need to get it done when they need to get it So, that’s what we’re focused on.

Max, Host: So, let’s pivot next to refranchising. Can you just talk about the strategy a little bit? What are your thoughts on the execution and what have been some of the key learnings?

Lori Fleas, CEO, Valvoline: Yeah, sure and this is an area Kevin is starting to dig into so I’ll ask him to also share his thoughts. It is one of the things that we talked about when we shared in earnings because as we recast the numbers and try to clarify the impact that refranchising has had in this year, it’s important that we also talk about why it’s going to deliver long term shareholder value. And really it’s about getting the right price combined with the right development agreements. So it’s really about the annuity stream that you create from the forward of those stores plus the growth in stores that you’re gonna capture added to the transaction price. And I would tell you that the three transactions are ahead of schedule versus what we, initially modeled which is great.

One, we’re not surprised because they have incentives at risk. So when we laid out the incentives which we changed two years ago, we created part of the incentive mix was for a development agreement and you had to be in good standing. So as we created these transactions, they’re tied, you know, the transaction and the franchise agreement for the stores we sell is tied to a development agreement doubles or triples the number of stores in those markets within a five year period of time. What that means is you gotta keep them on track for development. And so, we have a piece of the incentive that is applied to all product volume for all of the stores they have, not just the new ones but all of them.

And if they are on track with the development agreement, they get paid that money for the If they’re not, they don’t get paid. They’re ahead because that is a meaningful incentive to drive their four wall EBITDA and their return on capital invested. So they’re ahead by a good amount and so we feel good about the way things are started. It’s early, right? It’s only a few months in for some of them.

But the pipeline that they’re developing gives us confidence that they’ll stay on track.

Max, Host: So just a couple of questions off of that. First will probably be a two parter, but should we expect more deals ahead? And then with that, how do you think about the right mix of corporate versus franchise stores for you as the market has historically rewarded businesses that are 70%, eighty %, ninety % franchise mix? So where do you see yourself on that journey and how does ongoing refranchising fit in?

Lori Fleas, CEO, Valvoline: You take this one because we were just talking about Yeah,

Kevin Willis, CFO, Valvoline: yeah, exactly. I mean, as you look at it, there’s no ideal mix for us. If you look at the company owned stores, these are mid to high teen IRR at maturity, 30% cash on cash return assets. So there’s no reason to not do that. On the franchise side, as Lori talked about refranchising, in the near term, it creates, I would say, an optical headwind from the standpoint that you’re taking revenue and certain level of profitability out of the business.

So as you look at it from a comp perspective, you really have to think through that and we’ve tried to communicate what that means. But part of our objective, getting to two fifty stores per year by 2027, is very directly tied to these development agreements that these large franchisees have signed up for. And what we will see from that is more of an uplift from an overall ROIC perspective, from a margin perspective, from a top line perspective as we go forward in the coming five years, helping us get to that 3,500 store level but also helping us grow margins, top line, EPS at a faster clip ultimately as these things mature and progress. So it makes all the sense in the world. I mean if you’re very short term focused, you probably scratch your head but if you’re thinking about this business in the long term, it’s absolutely the right thing to do and the right way to do it.

To be clear though, these are tough deals to put together because the economics have to be right. It’s complicated. It’s not just a matter of we’re gonna sell this group of stores for this amount of money and everybody’s happy. Other things have to happen. You have to understand the economics of bringing in two to three times the size from a market perspective from the stores you’re selling and what that financial stream of dollars is gonna look like and what that’s gonna do to your financial performance over the course of the next three to five years as all of that starts to ramp and it’s very, very compelling.

Yeah. And so, as we’ve talked about internally in terms of doing more of this down the road, we don’t see any big refranchising deals on the horizon. I mean, there may be some small deals here and there but again, they’re hard to put together. It takes a lot of work, takes a lot of time and it has to be meaningful for us and the franchisee. So what we’ve done so far and all of that kind of happened pretty close together, we’re happy with that but we really don’t see chunks of that down the road.

Max, Host: Got it, okay. That makes sense. And then just the last couple of minutes on margins, Obviously, some pressure this year from investments on SG and A, from refranchising and pulling some of the revenues out. But how do you think about your EBITDA margin opportunity over the medium to longer term? Because you do have some numbers that are out there.

My guess is they’ll be updated at some point. But as we think gross margin and SG and A once we exit this year, sort of where are the bigger opportunities from here?

Lori Fleas, CEO, Valvoline: Yeah, I mean, based on where our business is performing, it is in line with the algorithm that we talked about building from 26% EBITDA margin to 29. So I would say in this year, we’re not seeing a margin lift because we had refranchising bringing the year over year sales growth down combined with the technology investment that we knew we needed to make which was a significant part about a third of the SG and A growth came from that. Now that’s not gonna continue to grow at that pace. So SG and A will start to to at a much slower rate. We’ve always talked about, you know, high single digits, which feels about right given some of the infrastructure we’ll continue to build out to support a bigger network.

But when we talk about those margins, I think those still feel pretty spot on although we’re refreshing and we may have upside from there but I don’t see a significant change that would lessen that margin expansion opportunity.

Max, Host: And on store openings, still confident in the two fifty by ’27, do you think the franchise piece can get there?

Lori Fleas, CEO, Valvoline: Yeah, I do and that’s the exciting part although everyone keeps saying, when’s it gonna come, when’s it gonna come? When you look at the development commitments that people have made, it takes a while for the refranchising to build the pipeline. So we knew that would take some time. We also updated, have updated development agreements with our big franchise partners and they are doubling their commitment. We always talked about going from 50 to 150 and, you know, hundred of the 150 would come from existing that came from a re upping on the commitments and then new partners would make up the remainder.

And so very much feel like we’re on pace to get to the two fifty and a lot of commitment. We were talking about it earlier, we’ve started to support our franchisees more as well, not just giving them permitting support, which I think we had some issues a couple years ago getting caught out by ground up permitting but also real estate and construction management support more so than we ever have.

Max, Host: So it sounds like balancing the carrot and the stick with your franchisee relationships.

Lori Fleas, CEO, Valvoline: Correct, I mean, we want them to be successful. It’s what drives the compounding effect of our business. So yeah, we can pull incentives away and we can, you know, we can threaten them with some things. The reality is we want them to be successful. So, we are putting some services in place which by the way they pay for because they also see the value.

That’s a win win for us and our partners.

Max, Host: I think that’s a great way to end it. Thanks so much for joining me.

Kevin Willis, CFO, Valvoline: Thank you. Thank you.

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