Valvoline Inc. reported financial results for its fourth fiscal quarter and fiscal year ended September 30, 2022.*
“We see significant strength in our preventive maintenance service model with system-wide store sales growing 20% to nearly $2.4 billion in fiscal 2022,” said Sam Mitchell, CEO. “These results were driven by a nearly 14% increase in system-wide same-store sales – highlighting our 16th straight year of growth – and an increase of 8% in our system-wide store count to more than 1,700 units.
“The sale of the Global Products business remains on track with the close expected in early calendar year 2023. As a pure-play automotive retail service provider, Valvoline’s strategy is to continue growing our preventive maintenance business through ongoing improvements in service performance and investments in network expansion, while continuing to develop capabilities for an evolving car parc.
“The additional benefits of the separation are clear: we expect to optimize our capital structure using the net proceeds from the transaction and enhance our capital allocation. To that end, our board has approved a $1.6 billion share repurchase authorization. Combined with our growth strategy, we are excited about the future and the compelling opportunities to drive long-term shareholder value.”
Valvoline’s Results Summary:
Fiscal 2022 sales for the former Retail Services segment increased 22% to $1.5 billion, as expected, driven by system-wide SSS growth of 13.7% and system-wide unit growth of 8%. Increased transactions – demonstrating continued share gains – and expansion of average ticket – highlighting pricing power and ongoing premium mix shift – both contributed significantly and nearly equally to strong SSS performance. Unit additions of 121 stores included an increase of 71 company-operated stores and 50 franchised locations. Adjusted EBITDA grew 11% to $421.6 million on a historical segment basis, as pricing actions began to offset significant inflationary pressure on product and labor costs. Incremental pricing taken in Q4 expanded margins on a per-transaction basis and is expected to normalize margin percentage by the end of fiscal Q1 2023.
As previously announced on August 1, 2022, Valvoline signed a definitive agreement to sell its Global Products business. The announcement resulted in the former Global Products segment being classified as discontinued operations, with the Retail Services segment becoming the Company’s continuing operations. The impact of these changes was primarily the following:
- Indirect expense realignment — assignment of all indirect expenses, including previously unallocated corporate costs, to the appropriate business;
- Supply agreement markup — reflection of the agreed upon markup in the product supply arrangement with discontinued operations; and
- Agency accounting treatment — recognition of product sales to franchisees and independent operators is reflected using agency accounting.
Previous periods have been recast on a consistent basis of presentation. Results of continuing operations are comparable to those previously discussed on a pro forma basis at the time of the announcement.
Balance Sheet and Cash Flow
- Total debt and net debt of approximately $1.7 billion
- Full-year consolidated cash flow from operations of $284.2 million and free cash flow of $125.3 million
- Returned $231.8 million in cash to shareholders via share repurchases and dividends, including $61.2 million in the fourth quarter
“We’re entering fiscal 2023 with strong momentum,” said Mitchell. “We expect to continue driving same-store sales growth by winning new customers and expanding average ticket. We expect to continue expanding our network of conveniently located stores, including a renewed focus on franchise development over time. With the combination of same-store sales and unit increases, we anticipate 14% to 18% top line growth in fiscal 2023. Adjusted EBITDA is forecast to grow 17% to 24% to $370 million to $390 million as margin leverage improves.
“Our business is resilient, highlighting the non-discretionary nature of preventive maintenance and positioning us well for future growth. Our key business drivers of miles driven and an expanding car parc exhibit low cyclicality. Our performance in previous recessionary environments gives us confidence in achieving our fiscal 2023 guidance and long-range targets. We continue making strategic investments to expand further into fleets and to broaden our service offerings as vehicle powertrains evolve.”
$1.6 Billion Share Repurchase Authorization
The company also announced its board of directors approved a new share repurchase authorization of $1.6 billion. The board of directors approved the share repurchase authorization to effectuate a significant return of capital to shareholders of a substantial portion of the expected net proceeds from the sale of the Global Products business. The Company generally expects to repurchase shares of its common stock up to the full amount of the authorization within 18 months of the closing of the Global Products sale. However, the timing and amount of any repurchases of common stock will be solely at the discretion of the Company and is subject to general business and market conditions, including closing the Global Products sale, as well as other factors, including legal and regulatory restrictions. The new share repurchase authorization is in addition to Valvoline’s $300 million share repurchase authorization announced in May 2021, of which $85.5 million remained as of Nov. 11, 2022.
*All comparisons in this release are made to the same prior-year period unless otherwise noted.