Good morning. My name is Carol, and I will be your operator today. At this time, I would like to welcome everyone to Valvoline’s Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we will have a question-and-answer session. [Operator instructions] At this time, I’d like to turn the call over to Mary Meixelsperger, Chief Financial Officer. Ms. Meixelsperger, please go ahead.

Good morning, and welcome to Valvoline’s third quarter fiscal 2019 conference call and webcast. Valvoline released results for the quarter ended June 30, 2019, at approximately 5 P.M. Eastern Time yesterday, July 31, and this presentation and remarks should be used in conjunction with that earnings release, a copy of which is available on our Investor Relations website at investors.valvoline.com. These results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. A copy of the news release has been furnished to the SEC on a Form 8-K. With me on the call today is Valvoline’s Chief Executive Officer, Sam Mitchell. As shown on Slide 2, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause the actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements, unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted basis, unless otherwise noted. Adjusted results excludes key items, which are unusual, non-operational or restructuring in nature. We believe this approach enhances the understanding of our ongoing business. A reconciliation of our adjusted results to amounts reported under GAAP and a discussion of management views of non-GAAP measures was included in our earnings release. The non-GAAP information provided is used by our management and may not be comparable to similar measures used by other companies. As we turn to Slide 3, let’s review our reported financial results for the quarter. For the fiscal third quarter, Valvoline delivered reported operating income of $102 million, net income of $65 million and EPS of…

Thanks, Mary. We are clearly pleased with our overall growth in adjusted EBITDA and EPS in Q3. Most of that growth was generated by another strong quarter of results in Quick Lubes. System-wide same-store sales growth was just under 10% in the quarter. These results continue to demonstrate our best-in-class retail services model. We added 198 net new stores to the system since last year as our steady pace of unit growth is ongoing. These additions, along with same-store sales, continue to drive overall momentum in sales and profit. In Core North America, we saw improved performance versus our year-over-year comparisons in recent quarters. However, volume and sales were still down, driven primarily by lower branded volume in the retail channel due to ongoing market dynamics in the DIY category. While we are beginning to lap the early onset of some of the DIY market challenges, the actions we implemented earlier this year also continue to show initial signs of success and help drive improved performance, including flat adjusted EBITDA. In international, volume growth remains strong in Europe, but was offset by ongoing soft volumes in other markets. Including unconsolidated joint ventures, volume grew 2%. Foreign exchange continues to negatively impact sales and profitability, but on an adjusted basis, EBITDA grew modestly. At our recent Investor Day, we presented our basic segment strategies of growing Quick Lubes, maintaining Core North America and developing International. Our results in the third quarter demonstrate the type of performance we would expect when we successfully execute against these plans over time. Let’s take a closer look at performance in Quick Lubes on the next slide. Q3 same-store sales growth was 9.7% system-wide, company stores grew 9.2% and franchise stores grew 10%. The balanced increases in transaction and average ticket continue to drive these impressive…

Thanks, Sam. Our adjusted results for Q3 are summarized on Slide 10. Reported sales increased 6%, with revenue recognition impacts nearly offset by a foreign exchange headwind. Pricing and favorable mix were the primary drivers of organic sales increases. Our gross margin rate on an adjusted basis was roughly flat and would have grown by 100 basis points, excluding the impact of revenue recognition changes. SG&A increased by 4%, primarily due to higher marketing and advertising expenses. The increase in equity and other income in the quarter was driven by benefits from a contract termination fee, which was recorded in the Quick Lubes segment and free trade zone incentives recorded in international. Adjusted EBITDA increased 10% with the benefits of mix, margin improvements and other income more than offsetting higher SG&A and unfavorable revenue recognition in FX. The overall impact of revenue recognition in Q3 was $1 million unfavorable to net income and the year-to-date impact was $2 million unfavorable. Let’s move to Slide 10 to discuss corporate items. Our reported effective tax rate for the quarter was 23.5%. Adjusted for key items, our effective tax rate was 23.9%. For the full-year, we continue to expect our adjusted rate to be 25% to 26%. Year-to-date cash flow from operating activities was $214 million. Year-to-date capital expenditures was $73 million, leading to free cash flow of $141 million. Net debt was flat to last quarter at $1.2 billion. Let’s turn to the next slide. Q3 included some benefits that won’t recur in Q4. Additionally, we anticipate some higher expenses in Q4, primarily due to price cost lag impacts from raw material increases announced in Q3. Based on our strong third quarter performance, we are narrowing our guidance for adjusted EBITDA to the high-end of the previous range and now expect $465 million to $470 million, narrowing adjusted EPS to match. We are raising our same-store sales guidance by 100 basis points to 9% to 10% for the full year, which would generate a two-year stacked growth of more than 17%. We’re also continuing to make good progress on our restructuring and cost-savings program, which is expected to generate approximately $40 million to $50 million in annualized pre-tax savings by the end of next fiscal year. This program gives us more flexibility to address the ongoing market dynamics impacting Core North America and to invest in growth opportunities. Now, let me turn it back over to Sam to wrap up.

Thanks, Mary. Q3 results were encouraging. Quick Lubes continued its excellent performance, driving growth for the company. Core North America’s results improved, but challenges are expected to continue as we work toward stabilizing the business. In International, we’re focused on developing market share growth by investing in our brand and capabilities. At our recent Investor Day, we presented our accelerating shift to a service-driven model supported by our growth, maintain and develop strategy to drive long-term shareholder value. We took another step in this direction in Q3 and we expect to make further progress in 2020. With that, I’ll hand it back to the operator to open the line for Q&A.

Thank you. [Operator Instructions] Our first question on the phone line comes from the line of Simeon Gutman from Morgan Stanley. Please go ahead.

Thanks. Good morning, everyone. My first question….

Good morning.

…is related to Core North America EBITDA. Can you talk about the cost savings that you’ve enacted and the reinvestment rate? Should we believe – is it safe to model the level of improvement that occurred this quarter out for the next three or so going forward, or does your reinvestment rate accelerate such that the EBITDA changed? Actually, it doesn’t look as good as it did in this quarter?

Yes. Thanks, Simeon. Simeon, we’re seeing some good progress in Core North America business and we see it in our results this quarter. When we look at our unit margins, we look at the guidance that we had provided earlier in the year. And as we prepare for 2020, we’re in the midst of liner views with each one of our major retail partners. And as we do that, we’re putting together plans for merchandising, promotion plans to continue to, what I consider, make progress in DIY. There are some new dynamics that we’ve been dealing with, new merchandising strategies that some other retailers have been exploring. But we feel like with our cost-savings program that we put in place, where we expect to achieve operating savings in the $40-million to $50-million range, that we’ve really created the flexibility for us to put together a strong plan for 2020 to address some of these dynamics. It’s a little too early to say exactly what that reinvestment rate will be. But I’m confident that we have the flexibility to both work to stabilize the Core North American business, that DIY business and be able to invest in the long-term growth of our business. So when we get to Q4, in our earnings call in November, we’ll be able to more clearly lay out those full expectations for 2020. But I do feel that with the changes that we’ve made in our merchandising plans that we’ve been implementing this quarter, the changes and improvements that we’re making on the consumer marketing side are going to lead to more stable results in the future for Core North America.

Okay. And thanks for that. And my follow-up is on the Quick Lubes business. Can you break out in this quarter the ticket versus traffic? And you mentioned that – I think you mentioned for the – within fourth quarter, you’re going to lap some pricing changes. Did you – can you quantify what that was? And does that not only affect the fourth quarter, but does it affect the subsequent quarters as well?

The Quick Lubes business, obviously, another really strong quarter of same-store sales performance. The split was really well-balanced between transaction growth, what we call, oil changes per day. We’re still seeing some good solid growth there and on the ticket side. The ticket side has been a nice mix of premium mix with non-oil-change revenue and pricing has been a benefit this year. We did take pretty aggressive action last year with some price increases that improved Q4 and benefited really throughout – it is benefiting us throughout 2019, too. It’s just – our feeling is, when we lapped that, we might see a little bit less growth on the same-store sales front. But the momentum still is quite significant that we have in that business. So as we laid out long-term guidance on Investor Day, we’re still expecting very strong same-store sales growth into 2020.

Great. Thanks, Sam.

You bet.

Our next question comes from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes. Hi, good morning.

Good morning.

So my first question is, Sam, I’d love to get your take on how you’re thinking about just the cost environment at this point? It seems like these oil prices have stabilized. But I think you’re taking some pricing in 4Q within Core North America, at least on the installer side? So if you could just give us sort of the state of play there, that would be helpful?

Sure. As we shared at our last call, we did have a base oil increase that was implemented in Q3. So, again, it impacted the results in Q3. We’ll feel the full effect of that in Q4. But on a positive note, the market has been moving on pricing as has Valvoline. And that includes both the pricing actions on the installer side of the market, but also on the DIY side of the market, although, those increases won’t take effect – full effect until the latter part of Q4. But it does position us well for improved margin stability going into 2020.

Okay. And then just on fiscal 2020, I know you’re obviously in your planning process at this point and we’ll hear more in November. But I was hoping to get a little bit more of a preview sort of what are some of the things that we should think about for fiscal 2020? Should we think about, like your algorithm in line with the long-term algorithm that you laid out on Investor Day? I know there’s – there are cost savings that are coming through next year. What are some of the puts and takes from your perspective that you are thinking about?

Yes. I think going back to what we laid out on Investor Day is the best guidance we can give right now, and it will become a lot more specific when we get to our November earnings call. The business right now, when you take a look at the different segments and how our business is performing, the momentum in Quick Lubes is obvious. And in 2020, we do expect to continue that momentum. Just the example of the new consumer app that we’re rolling out is just another example of our investment in technology and improved marketing that can help drive market share growth there. The key insight that we shared at Investor Day is not just that we have a great consumer-customer experience and strong digital capabilities, but they were really growing share, not just within the Quick Lubes business, but growing our market share within total DIFM segment. And that bodes really well for our continued growth, both in transactions, as we’re delivering on the consumer need very well, but also continuing to invest in our store growth, both with company stores and with franchise stores. So that part of the business, we’re obviously very bullish on and we’re going to continue to invest in. On the International front, our growth has been slower than we would have liked this past year. And we’re – we’ve taken a step back and looked at our growth opportunities internationally and we feel they are still quite significant. We’re just showing up and making sure that we’re making the right investments in building our capabilities, both with – on the supply chain side. As we noted, the acquisition that we made in Eastern Europe and the plans that we have in China, these are going to improve – can help…

Perfect. Thank you very much. Very helpful.

Our next question comes from Jason English from Goldman Sachs. Please go ahead.

Hi. This is actually Cody on for Jason this morning. Thank you for taking our questions. Two quick questions for you, one on the Core North America front and one on the Quick Lubes. On core North America, North America lubricant volumes were weaker than we expected, but organic volumes came in better. You’d previously disclosed that you had 1 million gallons with the GCOC business. But based on your minus 3% organic sales growth this quarter, it implies that GCOC did about 630,000 gallons this quarter. What drove this step-up from the normalized 250,000 gallons a quarter?

Cody, in terms of the GCOC business that we transferred over to Quick Lubes as part of the sale, last year in the quarter, the volume related to GCOC was between 300,000 and 400,000 gallons. Now we’re lapping that in Q4, and so the Q4 year-over-year change will be substantially smaller than that. But the GCOC impact for Q3, in terms of that business that was transferred over to Quick Lubes, was in that 300,000 to 400,000 gallons range.

And that’s for this year you’re saying or for last year, you did 300,000 to 400,000 gallons?

That was – last year, Core North America – the volume last year for Core North America sold. And of course, when we acquired GCOC earlier this year – late last year, that volume is now all reported in the Quick Lubes segment.

So then you would have a gain of about 250,000 gallons in this quarter, like increased volume?

In Quick Lubes, I would – the way – the right way to think about it is if they – if we lost 300,000 to 400,000 gallons in Core North America, that 300,000 to 400,000 gallons shifted over to Quick Lubes for the quarter.

Okay. And then moving on to Quick Lubes quickly, your same-store sales growth continues to outperform our expectations, and quite frankly, your expectations as well. What is driving this? And also, what’s holding you back from making greater investment to accelerate store growth? And then can you remind us what you believe your long-term store growth opportunity is and update us on what your store growth per year is? Thank you.

Okay. That was a handful of questions and I’ll break that down. Just on the same-store sales growth performance, yes, we’ve been pretty excited about the results that we’ve seen because we are executing really well on both the transaction opportunity and the ticket opportunity. To reiterate on the transaction opportunity, some of the key things that have been driving our growth and our customer count has been stronger retention of our customers and also attracting new customers. We’ve laid it out on Investor Day where we’re not only attracting customers from a competitor of Quick Lubes, but also from the broader DIFM market. And our messaging around service you can see and experts you can trust is really playing well with the installer customer who continues to look for more and more convenience and also having their car serviced where they really trust the operator. They’re not going to be sold service that they don’t need or overcharged. They’re looking for that partner. And Valvoline and our vision for how we grow our business is to be more than just an oil change provider, but really that trusted partner for the car owner in helping them care for the vehicle. And that includes even referring our customers to our partners to have other services done, such as that car dealer referral program that we mentioned on our recall services. So that’s how we’re going to continue to grow, which is really well-positioned to deliver on the consumer expectations and that drive for convenience and trust. The ticket opportunities remain really strong for us and that’s because – not just because of the increase in synthetic oil changes, it’s also because we do have opportunities on the, what we call, the non-oil-change revenue side of the equation. And as customers…

Great. Thank you very much.

You bet.

Our next question comes from the line of Mike Harrison with Seaport Global Securities. Please go ahead.

Hi. Good morning.

Good morning, Mike.

Just in terms of the – you mentioned the branded volume in Core North America was steady sequentially. Just wondering, I mean, we would typically expect to see a seasonal uptick in the June quarter. So is that the day that you guys lost share in, or are you adjusting for that seasonal impact?

Yes. There’s really – when you look at our volume and you can look over the last number of years, there’s not a big seasonal difference between Q3 and Q2. And even if Q2 starts in the winter months, you tend to have a – we tend to have a very strong March leading into the spring season, too. So the only quarter where we see a seasonal effect is really our first quarter, in the December quarter, where we tend to see little bit lower volume and then a strong pickup in Q2, and then Q3 and Q4 being pretty consistent. And that’s, in fact, what we’re seeing this year. That our Q2, Q3 and Q4 volumes are all going to be pretty close to one another, good solid stabilization there.

Okay. So you’re comfortable that that is a good number then, that is sequential volume? Okay

Yes.

And then the other question I have is, I was just wondering if you can provide a little bit more color on some of the issues that you’re addressing as you go through these line reviews with your key retail partners? You mentioned merchandising and promotional activity is something that might be changing. What is your focus going into this line review season?

Sure. To reiterate, the significant changes that took place in the last year were twofold. One was that, there has been a significant shift from our conventional lubricants to this synthetic segment. So conventional lubricants have been dropping at a double-digit rate really for the last couple of years and synthetics have been growing quite aggressively. The High Mileage segment has been kind of mid to upper single-digit growth rates, but the real significant news is the shift from conventional synthetic to synthetic. So what that involves is that, those shifts being reflected on the shelf. And so that’s one major change that retailers are making, and it’s been very profitable for retailers and it’s been good for our margins, too, as we sell more synthetics. That’s a key factor. The other factor has been this shift towards private label from the mid-tier brands. And so over the past year, year-and-a-half, mid-tier brands like the Mobil Super have lost distribution and that business is going to private label. Private label at most of our major accounts has grown significantly to take that volume and to expand even beyond that, and that’s where it had some negative share impact on Valvoline. It certainly had a negative impact on some of our competitors. And so that shift in dynamics is something that we’ve been adjusting to and making sure that our price points are right, our promotion tactics are right, that they keep our brands strong. So the retailers have a big role in this in terms of how they want to manage the category to optimize their traffic and their profitability. And so there has been probably sharper competition between the retailers on that private label pricing, whereas at the same time, they’re trying to make sure their category profits and their ability to move people up in the synthetics and higher-margin products that they’re capturing that margin. The motor oil category is very profitable for the retailer. So there are these dynamics that retailers are adjusting to. And the relationship that we have with our retail partners is really key for us navigating successfully through this. So that as we put our 2020 plan in place that it’s a plan that leads us to greater stabilization as we adjusted these factors of private label growth and the growth of the Synthetic segment.

All right. I appreciate the color there. Thanks, Sam.

Sure.

Our next question comes from the line of Chris Bottiglieri from Wolfe Research. Please go ahead.

Hi. Thanks for taking the question. Sorry if I missed this. I’m not sure if I heard it correctly. But I think you mentioned there is some one-time benefits in Q3 that you don’t anticipate in Q4? Did I hear that, or maybe you can just elaborate what those are and kind of how you think about it?

Yes. You heard that correctly, Chris. In our other income, we saw about a $3 million increase in Q3 versus last year, and it was driven by – we had a contract termination fee that benefited our Quick Lubes business and then we had a free trade zone incentive that benefited our International business. And we don’t expect those two things to recur in Q4. And in addition to that, we are expecting some modest integration costs associated with the business acquisition we did in Eastern Europe. And then we talked about some additional price cost lag in Q4. We think the combination of those things will see some modest deceleration from our performance in Q3.

Gotcha. Very help – that’s helpful. And then on North America, can you maybe just talk a little bit about the retail environment what you’re seeing? I know you mentioned you expect it to be very challenging. But it seems like even the aftermarket retailers are seeing pressure in that category. I’m not sure if there’s just price mix from substitution or from branded to private label and if that’s just a comp ad winner or not. But is there something else going on in the category now that you think the whole category is seeing, either – is there any data that you could track that maybe points to deferred maintenance? Is that an issue, or maybe any kind of macro thoughts that you’re seeing on DIY right now would be helpful?

I think the macroenvironment is showing signs of pretty good stability for the overall DIY environment. We’ve seen more stability in just category demand, where category demand for motor oil, for oil changes, has been closer to flat, down 1%, 1.5% over the past year. Whereas if you go back a couple of years ago, we are seeing sharper declines in DIY, so some encouraging signs there. I don’t think any of the retailers are dealing with issues of deferred maintenance. We’re seeing some pretty solid results come out of the retail channel and the results that they’re reporting with their comp sales. So it’s been – the issues that we’re dealing with on the motor oil side of the business are unique to motor oil with this shift towards synthetic and then, of course, the new dynamic with private label versus mid-tier brands, which we’ve explained. Now what’s different about where we are today versus where we were a year ago is that a year ago, some of these new dynamics were exactly that. They were new and we were adjusting to it. Today, we have much better understanding of the impact of the new dynamics and how best to respond to it. So I think we’re in a better place as we prepare for 2020 and beyond.

That’s helpful. Thank you.

Our next question comes from the line of Dmitry Silversteyn from Buckingham Research. Please go ahead.

Good morning. Thank you for taking my call. I’d like to explore a little bit what’s going on in your International business. First of all, Europe is not known to be a particularly strongly growing geography, so 9% growth there was pretty impressive. And I was wondering if you can provide some color in what you’re doing and how you’re doing it that you’re that successful? And then secondly, revisiting the last positive areas of China and Latin America. Can you talk about sort of what you’re seeing there in terms of market or company-specific headwinds? And how you’re dealing with them and when should we look for that business to start inflecting positively as well?

Okay. So taking a look at Europe first. We’ve really been focused on developing our distribution network in Europe and strengthening your partnership with our distributors and improving our customer service, reducing our lead times from order to getting the product into each of the different regions and countries into our distributor network. And so that’s been key for us in improving our performance. Our strengths tend to be in Northern Europe and then parts of Eastern Europe. And we see a really nice growth opportunity for us in Europe – in Eastern Europe, and that’s part of the rationale behind the plant and business that we purchased in the Serbia region. So we believe that’s going to help us really better access those markets. But in Northern Europe, we’ve seen some good progress with some upgrades and additions to our distributor network that are driving those improved results. So we feel good about Europe. The business in Latin America has been disappointing this year. We’ve had tremendous growth in Latin America over the last decade. It’s been really one of our shining stars of our International portfolio. And yet this past year, we’ve had a couple different effects. We’ve talked about moving our Brazilian business model to a licensee to reduce our risk in Brazil. That’s not one of our focus areas. But in other areas where we’ve had some significant growth, we just had a couple hiccups when it comes to some issues with a couple distributors and our growth plans in those regions. For example, Mexico was one where we had an underperforming distributor where we’re needing to make a change. But progress has been made there. I feel that Latin America will continue to be a strong growth region for us. And we expect to see…

Okay, that’s helpful. If I may follow-up on the China opportunity. I think it was a couple of quarters ago that you guys bought a small, sort of do-it-for-me chain in that region to kind of see what you can learn and what you can do in that. Having had that for a couple of quarters, can you provide a little bit of an update on what your plans for China may be, or how they may have changed in terms of developing a VR or C-type model in the region?

Yes. To be more specific on what we put in place, it was a joint venture that was formed with one of our longer-term partners there to specifically pilot a Quick Lubes type model in China. We now have four stores that are up and running. It’s really too early to talk about results, because they are just a couple of months into operation. So we’re excited about the potential and to be piloting and begin learning around what that model might look like in China. But we do feel that with the consumer, we’re on that tremendous growth in car ownership in China and the type of choices that consumers have in China that are Quick Lubes type model could be a good solution for maintenance services in China. So we look forward to reporting on how the pilot stores are performing in future quarters. It’s just a little bit too early to share that other than we’re optimistic and excited to be in pilot mode right now.

I’m good. Thanks for the update.

Sure.

Our next question comes from the line of Olivia Tong from Bank of America Merrill Lynch. Please go ahead.

Thanks. Good morning. Most of my questions have been asked at this point. But I wanted to get a better sense on the DIY – the Quick Lubes business. That business has obviously been performing quite well. It seems that sales keep coming in well ahead of expectations. So I’d love to get a better understanding of a breakdown – a further breakdown in terms of how you’re thinking about traffic, the things you’re doing to drive traffic and things you’re doing to drive ticket? And as we go forward, is there going to be a change in terms of the contribution that comes from these two items? Thanks.

Yes. The good news is that, we expect to continue to see balanced contributions from both traffic and ticket. And the – on the traffic front, we feel there’s a couple of key contributors to that. One is the experience that we’re delivering consistently in our stores. Our teams are just doing a great job taking care of our customers. And when customers come in and our service is efficiently and done in a way that builds trust with our stores, in our brand, it really drives retention. I also think it drives word-of-mouth success in growing our cars, too. But it’s our key that make sure the operations are strong. And how we do that in the stores, the technology that we put in place to measure wait times, to measure how fast the service is to keep our teams focused on efficient oil changes and providing the services is really key. We know that when wait times increase, or the service times slow down, our customer satisfaction scores drop pretty quickly, too. And so that – just that focus and understanding of that dynamic is key to our success. And so we’re going to keep that strong and then you add in continued improvements in our marketing efforts. Those are key to driving our transactions. This new app is – I shared it on the call today, because I’m very excited about the impact that it can have on our business. And we know from the pilot stores is that our retention gets much stronger as consumers download the app and they begin to use it for understanding our wait times before they even come in. Obviously, there’s benefits to the consumer and how they manage their time, but it also has the extended benefit of moving that…

Got it. Thanks, Sam. The details really helpful.

Good.

Our next question comes from the line of Laurence Alexander from Jefferies. Please go ahead.

Hi. This is Adam Bubes on for Laurence Alexander today. I was wondering if you could give us any indication regarding what percent of customers in Quick Lubes use the higher-priced synthetic oil? And where do you guys see that going over the next three to five years?

Adam, first of all, our overall mix in what we call our premium oil change is now at the low 60% of transactions.

65%.

65% now. So I’ll call it mid-60s. So we’re seeing the benefits of more cars requiring synthetic oil changes. And the expectation is that, it will continue to be a positive factor for us. The drain intervals tend to be a little bit longer on the synthetic oil changes. But the incremental profit opportunity more than makes up for that. So that growth towards synthetics is a real positive factor for us. But when you look out over the next few years, the majority of the new cars being produced today are requiring synthetic oil. I think it’s roughly about 70%. Is that right, Mary?

That’s right.

So as those new cars come into the car park population, that’s going to be a nice tailwind for us in driving synthetic growth within our Quick Lubes chain.

Perfect. That’s very helpful. And then one last question. I was wondering if you could touch on more on the opportunity possibly to expand Quick Lubes outside of North America? And how do those markets differ?

Yes. The closest in move out of the U.S. was first to Canada in terms of a new market for us. And while we’re still talking North America, it is still a new region for us. And so when we studied Canada and the opportunity there, we believe there’s an opportunity for – that Quick Lubes, in general, is underdeveloped in Canada. The acquisition opportunities that we looked at, good solid oil changes per day and good solid trends without really adding any of the tools that we have in our system. So as we bring our tools, our point of sales and marketing capabilities into the Canada business model, we’re excited about what we can do there in addition to building and developing more stores in Canada. So that one is easy and close in because of the consumer dynamics being very similar. I talked earlier about being encouraged, optimistic about the pilot in China. It’s too early to say what that looks like or how fast we’re going to go in China. But it’s great to be in pilot there, because based on some of the consumer dynamics that we see and the need for a high-quality offering between the expensive, less convenient car dealer and the local garage, we think there could be a nice play for Valvoline to participate in with a convenient high-quality alternative. So China is really interesting to us. In terms of other markets around the world, we’re not going – we’re not planning on being as aggressive right now and exploring those because of what we have on our plate closer in Canada and the pilot in China, and obviously just the growth opportunity that we have in the U.S. And part of that reflects the different dynamics in some of the mature markets like Australia and Europe where we just don’t see that Quick Lubes opportunity. The consumer dynamics are different and how cars are maintained. In other developing markets around the world, there could be opportunities for a Quick Lubes type model, but it’s just not in our priority list right now, given the opportunities that we have right here in North America.

Great. Thanks a lot.

Our next question comes from the line of Stephanie Benjamin from SunTrust. Please go ahead.

Hi. Good morning. Sam, I wanted to go back to the sort of commentary you made about the new Quick Lubes app. Is there anyway you could provide a little bit more color on how the app actually performs in the test markets? Did you see a spike in traffic that can be quantified compared to their total segment performance? That would just be very interesting. And then looking at Core North America, I know before it was kind of discussed that from a unit margin standpoint, close to that 360 for the full-year, are we expecting an improvement in 4Q, or how can we think about those full-year expectations? And then how does the promotional calendar look in 4Q? Meaning, how does it kind of compare to last year, so that we can look at that correctly? Thanks so much.

Okay. Yes, with regard to the app, it’s really going to be a driver of retention. So it’s not so much that it’s going to attract new customers, at least initially. I mean, hopefully, word-of-mouth that can help us in that regard. But what we have going on in our stores this summer is an effort when the consumer or car owner visits us to have them download the app while they’re in the store. So as you might recall, our consumers stay in their car. It gives us an opportunity to interact with them, so we have an incentive in place and effort by our teams to talk to the customer about, hey, let’s download this now, because it’s going to create some really nice benefits for you to use this in the future. So that you can manage your own wait times, you can come when it’s especially convenient. So the pilot market showed that our customer retention increased pretty substantially when the consumer downloaded the app and began to use that wait time benefit. I think that – and so that ultimately will help us obviously grow our car counts over time, but I can’t put a number on it at this point. But the other benefit that I mentioned in the presentation earlier is that, when we begin to communicate with consumers via the app and via texting, even e-mails, it’s just much more efficient than reminder cards in the mail. And it allows us to, I think, more graphically present some of the other services that they might be due for prior to even coming to the stores. So these are all great benefits for the consumer and an opportunity for us to improve our marketing efforts to the consumer as we communicate in a…

And the other thing I would add is that, in addressing your question on the promotional calendar, in the fourth quarter, our retail promotional calendar is just modestly softer. It’s quite similar with – I think there’s just one less event with one of our retail accounts. So it’s fairly comparable to last year for the fourth quarter.

Awesome. Well, thanks so much for the color.

Our next question comes from the line of Simeon Gutman from Morgan Stanley. Please go ahead. Simeon, your line is open. We would like to thank everyone for attending today. This concludes today – today’s event, and you may now disconnect.