Contradictions in Same-Store Sales Growth: Insights from the Latest Earnings Call

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System-wide Growth and Store Expansion:
- Valvoline reported a 5.8% increase in same-store sales and added 33 net new stores, expanding the network to 2,078 stores.
- The growth was driven by a balanced increase in transactions and ticket components, supported by a robust marketing strategy and expanding customer base.

Impact of Refranchising and SG&A Costs:
- The refranchising transactions led to a 6% increase in adjusted EBITDA, but also resulted in increased SG&A as a percentage of sales by 150 basis points to 19.3%.
- The refranchising impacted the comparisons, while technology investments contributed to the SG&A increase, which is expected to moderate in the future.

Tariff and Cost Management:
- Valvoline expects an operating cost impact of less than $4 million due to tariffs, with an estimated 1% to 2% increase to the cost of sales.
- The company is minimizing tariff impacts by shifting supply from China to Vietnam and considering alternative sources, while also mitigating through cost reduction efforts and pricing strategies.

Customer Demand and Market Resilience:
- Despite macroeconomic uncertainties, Valvoline observed consistent customer demand, with no evidence of trade-down or service deferral.
- The company benefits from strong fundamentals in the automotive industry, including increased driving miles, vehicle retention, and convenience demand.