Valvoline Aims to Be Pure-Play Retailer as Consumer Demand for Auto Service Rises

Valvoline, the second largest operator of oil change and auto service locations in the U.S., said Monday (Aug 1) that it sold its global lubricants business in order to become a pure-play retailer focused on faster growth and expansion opportunities at a time when consumers are fixing up their aging cars and trucks.

In announcing its new business model, the 160-year-old brand based in Lexington, Kan. said it will use some of the $2.6 billion it will get from selling its oil products business to Saudi-based Aramco and plow it back into growing its portfolio of physical stores when the deal closes in late 2022 or early 2023.

“With a footprint of nearly 1,700 stores that currently reaches less than 15% of households, we have significant opportunity for unit expansion, and we will be increasing our emphasis on franchisee growth,” Valvoline CEO Sam Mitchell told analysts on a conference call Monday, before expressing his “bullishness” on the future of retail services.

“With a clear corporate focus, we will increase and leverage our scale to prepare for and capture new customer and service opportunities,” Mitchell added, noting plans to add 150 new stores this year as demand for aftermarket auto services and preventative maintenance — including for electric vehicles (EVs) — is rising.

Timing and Growth

Alongside Valvoline’s separation plan, the newly focused retailer also released preliminary fiscal Q3 earnings results for the three months ended June 30 which showed its existing retail services unit saw a 16% increase in revenue with 10% growth in same-store sales.

In its presentation to investors, Valvoline said it is targeting 20% earnings growth from its chain of stores, as well as the continuation of the brand’s evolution that has led to a 15-year streak of consecutive same-store sales growth, in part due to an increased emphasis on adding more franchisees, to catch rivals such as Jiffy Lube.

While Valvoline clearly competes within the highly competitive automotive service category, it told investors that its metrics and growth potential also position it to compete as a “high growth retailer” alongside indirect competitors and brands such as Lululemon or Wingstop.

“The key focus for us is growing our preventive maintenance business where we have significant competitive advantage and significant opportunities for continued growth,” Mitchell said. “It’s that core business that we’re so bullish on, that we’ll be very focused on in the years ahead.”

Aftermarket Auto Is Hot

Valvoline is not the only retailer benefitting from consumers’ ongoing shift towards cost consciousness at a time when inflation is tightening household budgets, leaving two-thirds of Americans living on a constrained paycheck-to-paycheck lifestyle and another 13% forced to dip into their savings in recent weeks.

That trend has also benefited retailers, such as O’Reilly Automotive, which last week reported that growth in its sales to professionals stood out as a bright spot and helped offset a broader decline in overall consumer spending and outlook.

At the same time, shares of AutoZone have outpaced the markets and led the automotive retail segment for the past year, as its stock has risen over 30% in the past 12 months compared to a 6% decline for the S&P 500.

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