Driven Brands Holdings Inc. (NASDAQ:DRVN) Q1 2024 Earnings Call Transcript

Madison Callinan: Great, thanks guys.

Operator: Your next question comes from Christian Carlino from JPMorgan. Please ask your question.

Christian Carlino: Hi good morning. Thanks for taking our questions. I just wanted to follow up on some of the competitive dynamics in Car Wash. Are the recent pricing changes is that a result of maybe some pressure from peers in certain markets where you need to lean into value? And just given the development pipelines in the Car Wash business are quite long. Do you see the industry continuing to slow unit growth into next year or does it seem like we’ve found maybe a local bottom?

Jonathan Fitzpatrick: Yes, I’ll start with sort of the development view, Christian, and then Danny can probably talk a little bit about the other question. I think I’ve said it on multiple occasions. I think we’ve seen a massive increase in the number of car washes over the last sort of 3 to 4 years while we’ve been in this category, somewhere between 2,000 and 3,000 new express tunnel car washes have come online in the United States, which is obviously a massive impact. I have said in the past that we think that will moderate in 2024. But again, with the sort of long lead times on the pipeline, I think we’ll see further moderation in 2025. And then, Danny, on the first question.

Danny Rivera: Yes. Christian, on the first question, look, I think we’ve mentioned before, we’re under indexed as it relates to membership in our U.S. car wash business, and memberships obviously a hugely important part of that business because it just creates predictability in that business. So leaning into value just seemed like a natural thing to do to build up our membership base. And the result is exactly what we’re hoping for, increased member conversion and reduced churn. So we’re happy with what we’re seeing, and it’s doing exactly what we hoped it would.

Christian Carlino: Got it. That’s helpful. And I think last quarter, you said the lower end of the guide implies continued pressure from weather and some macro overhang. And you talked about inflation continuing to pressure at least low income consumer for the balance of the year. So while you reiterated the range, is it now biased more towards the low end? Or are you outperforming in other areas where you think you can still achieve the EBITDA you laid out at the Analyst Day?

Danny Rivera: Yes. No, I think everything we talked about earlier, when we set the range this year, the top end of the range was [there on] what we said on Investor Day, right? So we don’t have any questions on 2026. I mean that’s still our goal is everything will drive towards, of course, consumer confidence and things like that will obviously impact us as we move through the year. But everything we’re looking at, whether it’s adjusted EBITDA, debt pay down, et cetera, we’re still all on track for our plan for 2026.

Christian Carlino: Got it, thank you very much. Best of luck.

Operator: Your next question comes from Kate McShane from Goldman Sachs. Please ask your question.

Kate McShane: Are you still expecting to open between 205 and 220 stores this year? And how should we think about the cadence of store openings, especially in the Maintenance segment?

Jonathan Fitzpatrick: Yes, good morning Kate. Yes, nothing has changed in terms of our guidance that we gave on the call about 90 days ago. So we’re reiterating the major financial numbers along with the same-store sales and unit count assumptions that we gave on that call. So I would just say nothing has changed there. And we do expect that typically, you see a little bit more of weighting of stores in the back half of the year, but nothing has changed in terms of our overall unit count guidance.

Kate McShane: Thank you.

Operator: Your next question comes from Chris O’Cull from Stifel. Please ask your question.

Chris O’Cull: Thanks. My question is about the Car Wash segment. Jonathan, can you explain how the U.S. and the international car wash businesses strategically support each other? And then I had a follow-up.

Jonathan Fitzpatrick: Sure. I think, obviously, there are two different geographies. There are two different operating models because our European Car Wash is what we call an independently operated model or you could think almost franchise-like. But the teams do spend a lot of time together talking through pricing strategies, promotion strategies, the right equipment, the right chemical. So it’s really more of sharing best practices, what’s working, what’s not working with both teams, understanding opportunities, whether it’s value engineering of the buildings, the chemistry, again, the marketing and promotions. So that’s really how we sort of leverage the leadership between both groups.

Chris O’Cull: Part of the driven thesis is that you have a national consumer platform for auto services. So how does an International Car Wash business support that strategy?

Jonathan Fitzpatrick: Our international business is run by Tracy Gehlan is a fabulous business that continues to deliver really solid results. And we bought that business as part of our initial entry into the U.S. Car Wash market in August of 2020. So I would just say that Tracy and the team continue to deliver great results, very stable predictable results and of course, naturally, it doesn’t necessarily impact our U.S. business. But again, there’s lots of learnings and best practices that we leverage between each other.

Chris O’Cull: Okay. Fair enough. And then lastly, I know the Car Wash EBITDA in the U.S. was impacted by the weather. But can you guys describe how the U.S. Car Wash profitability looked after January or once you got through that weather period?

Jonathan Fitzpatrick: Yes, Chris, we don’t get into periods or subsegment reporting within periods. I will tell you that we’ve seen as we’ve gotten through the difficult weather periods in January. And like I said on the prepared remarks, we’re seeing a nice trends in April, certainly with our International Car Wash business. And I think Danny and Tim Austin are pretty happy with how the business is performing right now in the U.S.

Chris O’Cull: Okay, great. Thanks guys.

Operator: [Operator Instructions] Your next question comes from Peter Keith from Piper Sandler. Please ask your question.

Peter Keith: Hi good morning everyone. I wanted to dig into two different segments, one negative, one positive. I’ll do the negative one first. Could you talk about PC&G where the comp was 1.3%? I’m not sure if weather played a role in that, but we’ve seen pretty steady comp deceleration there. I know the Glass is in turnaround, but I tend to think about the collision business as being really steady and quite robust from a ticket standpoint. So, could you flesh out some of the fundamentals that’s dragging on the sales there?