Can you quantify the expected impact of oil pricing on COGS in Q3/Q4? How will gross margin rate be maintained with price increases?

No cost pressure was seen in Q2, but Q3 is experiencing rising base oil costs. The company expects to fully cover these cost increases on a dollar basis through pricing actions, though the gross margin rate may be modestly impacted. Lubricant costs are 20-25% of COGS, and a $1/gallon base oil increase typically requires a $0.50-$0.60 per oil change price increase. Waste oil sales provide a partial offset. “To mitigate that, we have implemented price increases to cover those cost increases on a dollar basis. Most of our franchise partners have done the same or in the process of doing the same. So we feel like we will fully cover any cost impacts. In terms of overall margin recovery, we would expect that the margin rate to be modestly impacted based upon the cost that's rolling through.”

Can you discuss the milestones, integration progress, and any positive or negative aspects of the Breeze acquisition?

Integration is progressing well, with SG&A synergies (payroll, procurement) delivered earlier than planned. The focus remains on operational stability, talent retention in stores, and full integration of support and management teams. The Breeze team has managed store operating expenses effectively, contributing to better-than-expected performance. “Yes, our integration efforts are progressing well. We're pleased with the performance of Breeze as both Kevin and I talked about in our prepared remarks, we delivered some of the SG&A synergies earlier than planned.”

What was the market share performance in Q2? If demand slows due to oil prices, is it a temporal deferral or a structural issue?

Valvoline grew market share across its business, even excluding the Breeze acquisition, driven by strong growth and new store contributions. Any demand slowdown due to oil prices is considered temporal deferral, as preventive maintenance is habitual and driven by peace of mind for long drives, with miles driven only slowly impacted by sustained high gas prices. “Yes. When you look at market share, Simeon, to your first question, we definitely grew share across our business. Even when you take the impact of Breeze out of the numbers, which obviously was a share capture we still had really strong growth across our system, not just in same-store sales, but also the new store contribution.”

VVV

Valvoline (VVV) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q2 FY26)· Consumer Discretionary· May 7, 2026

Source: earnings call transcript

Executive summary

Valvoline Q2 FY26 — Strong Top-Line Growth and Raised Full-Year Guidance

Valvoline delivered robust Q2 FY26 results, driven by strong system-wide sales and effective cost management, leading to significant EBITDA and EPS growth. The company raised its full-year guidance, reflecting confidence in its resilient business model and execution, despite anticipating increased product costs in the latter half of the year. Integration of Breeze Auto Care is progressing ahead of schedule, contributing positively to performance.

Highlights

Systemwide store sales increased nearly 20% in Q2 FY26.
Net sales grew 25% to $504 million in Q2 FY26.
System-wide same-store sales grew 8.2% in Q2 FY26, with ticket driving about 2/3 of the growth.
Adjusted EBITDA increased 28% to $134 million, with margin expanding 60 basis points to 26.5% in Q2 FY26.
Adjusted EPS increased 21% to $0.41 per share in Q2 FY26.
Year-to-date operating cash flows improved to $160 million and free cash flow was $45 million, an increase of approximately $57 million over last year.

Concerns

Gross margin rate decreased 20 basis points year-over-year to 37.1% in Q2 FY26, though improved 40 bps excluding depreciation.
Anticipated increase in product costs in Q3 FY26 due to rising crude oil prices and potential Middle East conflict impacts.
Breeze Auto Care acquisition is a negative impact to margin, albeit less than the initially expected 100 basis points for the full year.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year same-store sales outlook	raised outlook high materiality	FY26	High
Full-year Adjusted EBITDA outlook	raised outlook high materiality	FY26	High
Full-year Adjusted EPS outlook	raised outlook high materiality	FY26	High
Full-year new store growth	within our full year guidance medium materiality	FY26	High
Net debt to adjusted EBITDA target	target leverage as quickly as possible medium materiality	ongoing	High
Breeze Auto Care contribution to full-year EBITDA margin dilution	less than 100 basis points medium materiality	FY26	High

VVV operating KPIs by quarter

VVV operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q2 FY26	Jun 2026 Q3 FY26	Change vs prior quarter
New stores opened Franchise	20 We added 31 new stores for the quarter with 20 coming from franchise and 11 on the company side. Source: earnings call transcript	26 We opened 47 net new additions for the quarter, 26 openings coming from franchise growth with 1 closure and company opened 20 and had 2 transfers from the Express Care platform for a total of 22. Source: earnings call transcript	+30%
New stores opened Company	11 We added 31 new stores for the quarter with 20 coming from franchise and 11 on the company side. Source: earnings call transcript	20 We opened 47 net new additions for the quarter, 26 openings coming from franchise growth with 1 closure and company opened 20 and had 2 transfers from the Express Care platform for a total of 22. Source: earnings call transcript	+81.8%
Stores	2,409 We finished the quarter with a total store count of 2,409. Source: earnings call transcript	2,456 We added 47 net new stores in the quarter, bringing our overall network to 2,456 stores. Source: earnings call transcript	+2%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Breeze Auto Care Acquisition of quick lube service centers to expand network.

Integration is a multi-year effort, currently focused on operational stability, talent retention, and aligning support and management teams. The Breeze team managed store operating expenses well.

Risks & headwinds

Increased product costs due to crude oil prices Q3 FY26 onwards

started to see costs increase in Q3 FY26, anticipate this will continue

Mitigation:working closely with suppliers to mitigate supply constraints; company and some franchisees have taken pricing actions expected to mitigate cost increases on a dollar basis.

Middle East conflict duration and impact on base oil supply ongoing

severity and duration of those will be impacted by the length of the Middle East conflict

Mitigation:working very proactively with suppliers to ensure continued supply.

Breeze Auto Care margin dilution ongoing

Breeze is a negative impact to margin, albeit less than we expected so far

Mitigation:building momentum in that system to improve profitability.

What to watch in Q3 FY26

Product cost increases and pricing actions

Q3 FY26

Current started to see costs increase in Q3 FY26, company and some franchisees took pricing actions

Target Full mitigation of cost increases on a dollar basis, modest impact to gross margin rate

Why it matters

Determines profitability and gross margin trajectory amidst rising input costs.

As we enter the third quarter, however, we have started to see costs increase, and we anticipate this will continue depending on the length of the Middle East conflict. We're working closely with our suppliers to ensure we mitigate any supply constraints and both company and some franchisees have taken pricing actions, which we expect will mitigate the cost increases on a dollar basis.

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Q&A highlights

Where did the same-store sales outperformance come from (company/franchise/geography)? Did you see any demand softening in Q2 or early May?

Franchise stores outperformed company stores in same-store sales, primarily driven by transaction growth influenced by new store contributions and lapping prior-year weather. No signs of trade-down or deferrals were observed, as preventive maintenance demand remains resilient. Gas prices typically have a slow impact on miles driven.

“Yes, we had really strong same-store sales growth at 8.2%. And as I mentioned, it did exceed our expectations. About 2/3 of that came from ticket with actually all things contributing healthy amounts on the ticket side, net pricing was good, premiumization and then OCR penetration all positive.”

asked by David Bellinger · answered by Lori Flees

2 min read 6 chapters

Detailed narrative

Q2 Performance Highlights

Valvoline reported strong Q2 FY26 results with net sales of $504 million, a 25% increase year-over-year, and system-wide same-store sales growth of 8.2%. This growth was primarily driven by ticket (two-thirds) through net price, premiumization, and NOCR penetration, with transactions also contributing across the network.

Franchise stores notably outperformed company-owned stores in same-store sales, mainly due to transaction growth influenced by new store contributions and lapping prior-year weather events.

Profitability and Cash Flow

EBITDA increased 28% to $134 million, expanding margins by 60 basis points to 26.5%. Adjusted EPS grew 21% to $0.41 per share, despite a $0.06 per share impact from interest expense. The gross margin rate was 37.1%, a 20 bps decrease YoY, but would have improved by 40 bps excluding depreciation.

The company also improved year-to-date operating cash flows to $160 million and free cash flow to $45 million, a $57 million increase over the prior year.

Breeze Auto Care Integration and Contribution

The integration of Breeze Auto Care is progressing ahead of schedule, with financial contributions better than expected due to improved execution on store-level expenses and early G&A synergies in payroll and procurement. The multi-year integration effort is focused on maintaining operational stability, retaining talent in the stores, and fully aligning support and management teams.

Breeze's performance is contributing positively, with its margin dilution expected to be less than the initial 100 basis points for the full year.

Network Expansion and Unit Economics

Valvoline added 31 new stores in Q2, bringing the total to 2,409, after accounting for 2 closures and 4 transfers. The development pipeline remains healthy for both company and franchise, with new store additions weighted towards the back half of the year, including 14 openings in April (9 franchise).

The company and its franchisees are actively reducing capital costs for new builds and conversions by 10-15%, with a line of sight for another 10-15%, while maintaining mid-to-high teens IRR for new units.

Cost Management and Pricing Actions

While Q2 saw no material product cost increases, Q3 has started to see rising costs due to crude oil prices and the Middle East conflict. Valvoline and some franchisees have taken pricing actions to mitigate these increases on a dollar basis, expecting to fully cover cost impacts.

Management noted that lubricant costs represent 20-25% of COGS, and a $1/gallon base oil increase typically requires a $0.50-$0.60 per oil change price increase to maintain dollar profit.

Customer Demand Resilience and Market Share

Management noted continued resilience in customer demand for preventive maintenance, with no signs of trade-down or deferrals, even with potential macro headwinds like gas prices. The habitual nature of oil changes, particularly for peace of mind before long drives, contributes to consistent demand.

Valvoline also reported growing market share across its business, even when excluding the impact of the Breeze acquisition, attributing this to its strong value proposition and execution.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.