Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- System-wide store sales grew 12.4% to $809 million.
- Same-store sales growth for the quarter was 6.5%.
- Adjusted EBITDA improved almost 12% to $123 million.
- Operating income increased 8% to $93 million.
- Added 33 new stores to the network this quarter, bringing year-to-date net additions to 109.
Negative Points
- Growth moderated in customer base for same stores in Q3.
- Increased competitive advertising spend impacted growth.
- Adjusted net income decreased 16% to $58 million.
- Adjusted SG&A as a percentage of sales increased 40 basis points over the prior year.
- Gross margin rate declined by 40 basis points year-over-year.
Q & A Highlights
Q: Could you help us understand the fourth quarter same-store sales outlook and the impact of the CrowdStrike issue?
A: In July, we started strong but faced challenges from a hurricane in Houston and a CrowdStrike issue, which impacted systemwide revenue by just below $5 million. We estimate the July comps were affected by 30 to 50 basis points. For the full quarter, we expect same-store sales to be towards the low end of the range, potentially slightly below.
Q: What is the potential for more refranchising in the future?
A: We will consider refranchising when we have a partner who can drive accelerated network growth and shareholder returns. This is opportunistic and depends on finding the right partner who aligns with our brand and people standards.
Q: Can you talk about the spread of the 6.5% comp across markets and the performance gap between mature and immature stores?
A: We are not seeing significant regional differences. Slight changes are observed in discounting and non-oil-change service penetration in lower-income areas. Mature stores continue to perform well, and newer stores add about 100 basis points to the overall comp.
Q: How is the increased advertising spend impacting traffic and competitive advertising?
A: We saw an increase in lower funnel advertising dollars and some steeper discounting from competitors. We chose not to follow the deeper discounts but focused on our value proposition. We are agile in our advertising spend, moving to lower-cost channels to maintain a strong return on ad spend.
Q: Can you provide insights on the refranchising transaction's impact on the P&L and the use of proceeds?
A: The refranchising transaction will have a modest impact of less than $2 million of EBITDA in Q4. Proceeds will initially reduce outstanding debt, and we will evaluate share repurchase versus debt reduction.
Q: Can you provide an update on the ERP implementation and its progress?
A: We have made significant progress in remediating the control changes related to the ERP implementation. We expect the material weakness to be fully remediated by the end of the fiscal year, with ongoing testing and validation.
Q: How is the fleet business performing, and what is its potential for growth?
A: The fleet business continues to grow, driven by new accounts and increased penetration within existing accounts. It represents less than 10% of our sales but has higher ticket and transaction rates, contributing positively to margins. We see a long runway for growth in this under-served market.
Q: Can you discuss the impact of pricing and cost stability on the September quarter and next year?
A: Lubricant costs have been stable year-to-date. We are monitoring macroeconomic factors, such as crude oil prices, which could impact base oil costs. However, we do not expect significant changes in the short term.
Q: What is the progress on finding new large franchise partners?
A: We continue to have robust discussions with prospective partners. Our goal is to triple our annual new unit number, with two-thirds coming from existing franchisees and one-third from new partners. The conversations are progressing well, and we are optimistic about future growth.
Q: Can you provide an update on the new store format and efforts to reduce build-out costs?
A: We are making progress in reducing capital costs for new units and conversions. Changes to building design will start showing in fiscal '25 and '26. We are also implementing easier changes for converting locations and engaging franchise partners to drive lower construction and equipment costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
