Valvoline (NYSE:VVV) reported first-quarter fiscal 2026 results that management described as a “strong quarter to start the fiscal year,” citing productivity gains in stores, network expansion and margin improvement that drove meaningful earnings growth.
Same-store sales rose on ticket growth and premiumization
President and CEO Lori Flees said the company delivered another double-digit increase in both system-wide store sales and net sales. System-wide same-store sales increased 5.8% in the quarter, representing 13.8% growth on a two-year stack. Flees said ticket was the majority contributor to comparable sales, with “all three levers contributing,” led by net price and premiumization. The company also reported continued positive transaction growth, despite a tougher year-over-year comparison.
On the question-and-answer portion of the call, management discussed a pilot of mobile service delivery. Flees said the mobile initiative is “relatively small,” limited to a couple of markets, and focused on consumer and fleet convenience. Management said the mobile channel contributed about 20 basis points to same-store sales in the quarter.
Flees also said the company is not seeing signs of trade-down or service deferral, describing demand for nondiscretionary services as resilient. She said customer feedback remains strong, citing a 4.7-star rating across the network and Net Promoter Scores over 80%.
Network expansion boosted by Breeze acquisition
Valvoline highlighted a step-change in store count from its Breeze transaction, which added 162 stores in a one-time contribution. Flees said the Breeze business is performing as expected and integration activities are underway, including consolidating and prioritizing acquisition and construction pipelines. She noted the company sees opportunities to share best practices across the combined teams.
Outside of Breeze, Valvoline added 38 net new stores in the quarter, including 10 from franchise. Flees said franchise openings were more modest in the first quarter but described the pipeline as healthy for both company and franchise development. She noted that franchise partners opened nine units in January and said the company continues to build momentum toward a goal of 250 new units in fiscal 2027.
Revenue, margins and cash flow improved; GAAP loss tied to divestiture
CFO Kevin Willis said net sales were $462 million, up 11% on a reported basis and up 15% adjusted for the impacts of refranchising in the prior-year quarter. Gross margin was 37.4%, an increase of 50 basis points year over year. Willis attributed the improvement to leverage in labor and product cost, partially offset by increases in other service delivery costs such as rent, property taxes and depreciation. He added that leverage would have improved by an additional 50 basis points excluding depreciation, primarily tied to new store openings.
SG&A as a percentage of net sales increased 30 basis points year over year to 19.3%, primarily due to a non-recurring payroll-related benefit of about $2.4 million in the prior-year quarter. Excluding that benefit, Willis said SG&A as a percentage of sales would have declined by 30 basis points.
Adjusted EBITDA margin increased 60 basis points to 25.4%. On a GAAP basis, Valvoline reported a loss from continuing operations of $32.2 million, which Willis said was largely driven by a loss on divestiture of certain Breeze stores required by the Federal Trade Commission. On an adjusted basis, income from continuing operations was $47.6 million.
Willis said EPS increased 16% year over year, or 28% when adjusted for refranchising. Operating cash flow improved to $64.8 million, and free cash flow was $7.4 million, improving by about $20 million versus the prior-year quarter.
Leverage, interest expense and plans for repurchases
Willis said the company expects pre-tax interest expense to increase by about $33 million in fiscal 2026 versus fiscal 2025 due to a new Term Loan B. Valvoline’s leverage ratio was 3.3x net debt to adjusted EBITDA on a trailing 12-month basis.
Management said it is focused on reducing leverage back to 2.5x “as quickly as possible” in order to resume share repurchase activity. In response to an analyst question, the company said it framed its deleveraging timeline conservatively but reiterated that once leverage returns to the targeted range, it expects to restart repurchases, potentially sooner if progress allows.
Outlook, weather impact, and operational initiatives
Flees said it was “too early to make changes to our guidance,” but management expressed satisfaction with first-quarter performance and confidence in delivering fiscal 2026 guidance. She noted that Breeze was included in first-quarter results for only one month and reiterated expectations for near-term headwinds on margin rates due to adding 162 immature stores.
On second-quarter trends, Willis said the start of the quarter was strong before Winter Storm Fern, which brought snow and ice conditions across many geographies and slowed momentum, particularly on the company-operated side. Flees said the company expects customers to return as normal activity resumes and noted that weather typically shifts demand timing rather than creating a long-term decline, while also driving seasonal needs such as batteries and windshield wipers.
Management also discussed marketing and technology initiatives. Flees highlighted an “Instant Transfer Portal” marketing campaign inspired by college sports that the company said generated strong engagement relative to other social performance. She also said Valvoline is exploring greater marketing efficiency as its footprint grows, including the possibility of a national advertising fund beginning in fiscal 2027, as referenced in its franchise disclosure documentation.
On technology, Flees outlined a multi-year effort that has included implementing a new CRM system, phases of SAP, an HRIS rollout, moving customer data to the cloud, and replatforming store systems. She said the company expects maintenance costs to decline over time and back-office and in-store efficiencies to improve, while technology spending growth is expected to moderate relative to sales.
Finally, in response to a question on internal controls, Willis said remediation of IT general controls was completed during fiscal 2025, while work remains ongoing on business process controls. He said the company expects to complete remediation by the end of the fiscal year, noting that the auditor’s opinion is annual, and added that neither Valvoline nor its auditor has concerns about the accuracy of the company’s financial statements.
About Valvoline (NYSE:VVV)
Valvoline (NYSE: VVV) is a leading global producer and distributor of automotive and industrial lubricants. The company’s portfolio spans engine oils, gear oils, transmission fluids, greases, coolants and driveline products, all designed to help improve vehicle performance and longevity. Valvoline’s products are marketed under the Valvoline®, Valvoline NextGen® and Valvoline™ SynPower® brand names and are formulated to meet the stringent requirements of passenger cars, light trucks, heavy‐duty vehicles and off‐road applications.
In addition to its core lubricant business, Valvoline operates one of North America’s largest quick‐lubricant service networks through Valvoline Instant Oil Change℠ (VIOC).
