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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to the Valvoline Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sean Cornett, Head of Investor Relations of Valvoline. Thank you. Please go ahead.
Thanks, Tenia. Good morning, and welcome to Valvoline's Fourth Quarter Fiscal 2020 Conference Call and Webcast. Valvoline released results for the quarter ended September 30, 2020, at approximately 5:00 p.m. Eastern Time yesterday, October 28, and this presentation and remarks should be viewed in conjunction with that earnings release. Copy of which is available on our Investor Relations website at investors.valvoline.com. These results are preliminary until we file our Form 10-K 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 are Valvoline's Chief Executive Officer, Sam Mitchell; and Mary Meixelsperger, Chief Financial Officer.
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 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 exclude key items, which are unusual, nonoperational or nonrecurring 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's use of non-GAAP measures is included in the presentation appendix. 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 financial results for the quarter and the year.
For the fiscal fourth quarter, Valvoline delivered reported operating income of $176 million, net income of $122 million and EPS of $0.66. For the fiscal year, following delivered operating income of $485 million, net income of $317 million and EPS of $1.69. Full year cash flow from operating activities was $372 million. There were several key items in the fourth quarter, which netted to an impact of $37 million of after tax income.
The largest of these related to nonservice pension and OPEB impact. Including mark-to-market remeasurements, these totaled $24 million of after tax income. We had a benefits policy change related to paid leave, the approval of which resulted in $9 million of onetime after tax income. Tax-related key items, including those related to legacy tax assets resulted in $30 million of pretax income and were largely offset in tax expense resulting in a $2 million after-tax benefit. Other key items related to restructuring and business interruption recovery, which combined $2 million of after tax income.
In Q4 fiscal 2019, and key items primarily related to $15 million of pension and OPEB after tax expense. Excluding key items, results for the current quarter included adjusted operating income of $132 million, adjusted EBITDA of $150 million and adjusted EPS of $0.46. For fiscal 2020, Valvoline generated adjusted operating income of $444 million, adjusted EBITDA of $510 million and adjusted EPS of $1.48.
Full year free cash flow was $221 million.
Now as we turn to Slide 4, let me turn the call over to Sam to discuss our results and operations in more detail.
Thank you, Sean. My hope continues to be that you and your families are doing well and remaining healthy and safe. I want to take just a few moments to reflect on a truly unique year. In many ways, the COVID-19 pandemic and the abrupt wide-ranging changes that caused a fiscal 2020, one of the most challenging years in my career at Valvoline. It also demonstrated the strength of our team. At Valvoline, it all starts with our people, and the team came through in tremendous fashion helping to deliver record results.
The durability of the Valvoline business model was reflected in our rapid recovery from the depths of the COVID-19 impacts, ending the year with outstanding results that drove year-over-year growth in profitability. We have strong momentum as we begin fiscal 2021, and we see next year as an inflection point for the company. Our shift to a service-driven business is accelerating and will drive faster growth in the future, including expected double-digit adjusted EBITDA growth next year.
Let's take a closer look at Q4 and fiscal '20 on the next slide. Valvoline's product and service business is focused on preventive maintenance, which remains steady across economic cycles. Our growth is driven by the competitive advantages that we continue to invest in, in our Quick Lubes segment and a hands-on customer-centric approach across all of our businesses.
Our performance in Q4 was exceptionally strong and generated results that exceeded our expectations. Overall, sales improved 26% and adjusted EBITDA increased by 42% from our results in Q3. These strong sequential improvements happened across all 3 segments. Adjusted EBITDA and EPS both grew in mid-teens for the quarter versus last year, driven by improved margins in all segments. For the full year, adjusted EBITDA grew 7%, with the strong performance in core North America, lifting roughly flat results in Quick Lubes and overcoming larger COVID-19 impacts in international.
We are delivering on the plan we shared at our May 2019 Investor Day. As a result, we're well positioned to see growth accelerate. With Quick Lubes, our highest margin, fastest growth opportunity expected to generate more than half of our adjusted EBITDA in fiscal 2021.
Let's take a closer look at Quick Lubes results on the next slide. System-wide same-store sales grew 8.3% in Q4, demonstrating significant improvement from Q3 and continuing the progress we saw in June. Same-store sales growth in Q4 matched our results in Q1, book ending the most severe impact from COVID-19 in March through May and contributing to full year growth of 2.3%. This year marks our 14th consecutive year of annual same-store sales growth, a testament to outstanding operational performance and in-store execution.
Q4 same-store sales were once again driven by both ticket and transactions. Ticket growth was driven by premium mix, an increase in non-oil-change services and pricing. Transaction growth was driven by digital marketing programs and continued growth and new customer mix. This combination helped offset the decline in miles driven and put our performance this quarter in line with our pre COVID-19 5-year average.
Total sales and EBITDA in Q4 each grew in the mid-teens versus last year, driven by same-store sales and unit growth. We added 30 net new stores to the system this quarter, including 22 newly built company stores. Overall, we grew our store count by 6% in 2020 as we continue to build our pipeline, positioning us for fiscal '21 and beyond. We recently announced 3 acquisitions that will give us a great start on unit growth for fiscal '21.
We're adding 26 net new company-owned stores, growing our presence in Texas and expanding in the Pacific Northwest. We're also acquiring the franchise system of 21 stores, primarily in Kansas, a strategic fit for our company store markets in the adjacent geographic area. We can discuss the Quick Lubes outlook for 2021, beginning on the next slide.
System-wide same-store sales are expected to grow in the low teens in fiscal 2021. This reflects continued strong operations and recovery from the most significant pandemic impacts in the middle of fiscal 2020. Normalizing for those impacts, same-store sales would grow 6% to 8%, in line with our longer-term target. The new company stores, we started building in late 2018, and those added in 2019 will be part of our comp base, but still ramping to maturity and accounting for roughly 100 basis points of same-store sales in 2021. Comp stores in our base since 2016 have driven substantial operating leverage. While COVID-19 impacts, the same-store sales and our efforts to keep stores staffed and open drove modest deleverage in 2020. We expect continued improvement in store level profitability in 2021.
Bottom line, store level performance continues to be the #1 profit driver in this business. As you can see on Slide 8, we expect a very strong year for unit growth in 2021, with 150 stores added or 10% growth at the midpoint of our guidance. This expansion is planned to come from across the system. First, based on our development agreements, our franchisees should add 30 to 40 new stores. Second, this coming year, we anticipate reaching our goal of opening 50 newly built company stores. When combined with the stores we've built and opened in the previous 3 years, we expect a significant contribution to EBITDA.
Lastly, with the acquisitions we've already announced and the pipeline we have in place, we anticipate adding nearly 60 acquired stores.
Let's turn to the next slide. The Quick Lubes growth drivers: same-store sales, newly built company stores, franchise unit growth and acquisitions are expected to be firmly in place for 2021, meeting the top line growth in the mid-20% range and EBITDA growth in the mid-30s, which is partly resulting from lapping the weak Q3 2020 results due to COVID-19 impacts. We see significant long-term opportunity in each of the growth levers. Same-store sales are expected to be driven by transaction growth, including new customer acquisition and ticket growth from premium mix, nonoil change services and pricing power. We also have substantial opportunities to increase our household penetration by building and acquiring more stores. Over the long term, we anticipate top and bottom line growth in the low to mid-teens range with each of the growth drivers contributing.
Let's review core North America's results on the next slide. For North America's Q4 adjusted EBITDA grew nearly 30% year-over-year behind a higher-than-anticipated improvement in gross margins. The majority of the margin increase was driven by ongoing favorable channel and product mix and continuing price cost lag benefits from lower raw material costs.
We saw a continued strong performance in the retail channel, due in part to the effectiveness of our merchandising and promotional strategies in DIY. Retail channel volume grew modestly in Q4 and was flat for the full year. A good sign of progress in our efforts to address challenging DIY category dynamics. We also benefited from our broad-based cost savings initiative during the quarter.
Favorable channel and product mix, lower raw material costs and benefits from our savings initiatives also drove full year margin expansion. Improved unit margins, combined with the expense reductions we implemented during the early stages of the pandemic, offset the impact of lower installer channel volume. The installer channel was significantly impacted by COVID-19. Recovery in the channel continues to build with Q4 installer volumes up almost 50% from Q3.
Let's take a look at to North America's outlook on the next slide. Core North America's volumes are expected to increase modestly in fiscal 2021. The DIY category is anticipated to be fairly stable with volume down roughly 1% and continued growth in the Synthetic segment. Valvoline's retail channel volume is expected to be relatively flat. We have solid merchandising plans in place across the key retailers and price gaps to private label are expected to be steady. Segment growth is primarily due to installer channel volumes rebounding from the significant pandemic impact in 2020.
In addition, we expect to continue winning new installer customers with our value-added selling approach. We've recently renewed a number of key national accounts, securing a portion of the installer base and extending our relationships with these important customers. A normalizing channel mix is anticipated to be a headwind to margins, lapping favorable price cost lag benefits, along with the recent modest increases in raw material costs are the primary drivers of the anticipated low double-digit decline in EBITDA for the upcoming year. Despite the headwinds in 2021, we expect EBITDA to be higher in the low double-digit range over 2019 results, well ahead of our targets that we gave at the Investor Day in May 2019.
Unit margins are expected to remain solid, near $4 as the benefits from our cost savings initiative have structurally improved margins from the $3.60 to $3.80 range in the 2018 to 2019 period.
Let's look at International's performance on the next slide. The International segment delivered substantial sequential improvement in top and bottom line results across all regions in Q4. Volume in the quarter, including joint ventures, was nearly back to pre pandemic levels from Q1, versus Q4 last year, China had strong volume growth, coupled with solid performance in Australia and other parts of Asia. This growth was offset by continued COVID impacts in Latin America, EMEA and India, driving the overall year-over-year volume declines in the quarter. An increased contribution from higher-margin geographies and joint ventures as well as overall improved margins drove a 9% increase in segment EBITDA.
For fiscal 2020, and lower volume, especially related to COVID-19 impacts in Latin America and India led to the decline in EBITDA. We anticipate significant top line growth in 2021 and with volume and sales each increasing in the low double digits, excluding sales from our new China plant to the China joint venture. Although levels of activity could be uneven across geographies, depending on COVID-19 recovery, this broad-based growth is expected across regions.
Our new lubricants facility in China recently completed the construction phase under budget and began initial testing in Q1. We expect the plant to come online by the end of the calendar year and be producing essentially all of our lubricant volume for the China market by the end of fiscal 2021. In the long term, logistics efficiencies and the elimination of third-party tolling fees is anticipated to drive meaningful cost savings. While the move to in-house production enhances our standing in the market, creating opportunities for volume growth.
We plan to continue investing for future growth through channel and platform development and brand building. The original motor oil global campaign, our new partnership with football club and our ongoing global partnership with Cummins are key parts of our approach to building brand equity and awareness and capturing opportunities to generate profitable volume growth. Continued SG&A investments and cost to ramp up the China plant are expected to moderate EBITDA growth in 2021 to the high single-digit range, but still in line with our 2019 Investor Day target.
Let me now turn it over to Mary to review our financial results and guidance in more detail.
Thanks, Sam. Our adjusted results for the quarter and the year are shown on Slide 14. In Q4, sales increased 4% on flat volume, primarily driven by the strong top line performance in Quick Lubes. For the full year, sales and volume declines were driven primarily by the significant impacts of COVID-19, particularly in Q3.
Favorable mix and price/cost lag benefits in core North America, along with margin improvement in Quick Lubes and international drove the 430 basis point increase in our gross margin rate this quarter. Q4 performance and earlier benefits from mix, price/cost lag and the cost savings initiative we began last year, improved gross margins for 2020. Higher SG&A in Q4 was driven by an increase in incentive compensation and a return of advertising and marketing expenses.
Full year SG&A benefited from the expense reductions we implemented as COVID-19 impacts, began to expand more broadly and were offset primarily by higher incentive compensation leading to modest SG&A growth in 2020. Overall, significant margin improvements were partially offset by higher SG&A, leading to growth in adjusted EBITDA for Q4 and for the full year.
Let's review key corporate items on the next slide. Net interest and other financing expenses increased $20 million for the full year, primarily related to the cost associated with calling our 2024 bonds early, which we treated as a key item in Q2. Our adjusted effective tax rate was consistent with our expectations. Total net pension and open up obligations declined by $71 million year-over-year reflecting strong performance and risk management of our pension plans.
Full year free cash flow grew modestly, a $47 million increase in operating cash flow, driven primarily by higher earnings offset a $43 million increase in CapEx due to investments in new stores in the China plant as well as higher cash taxes. Our balance sheet remains strong with total available liquidity of just over $1.3 billion, including $760 million in cash and cash equivalents on hand.
Importantly, we returned $144 million of capital to shareholders in fiscal 2020.
Let's review our fiscal '21 guidance on the next slide. In fiscal 2021, we expect mid-teens growth in sales, benefiting from both strong same-store sales and store additions and Quick Lubes and a return to growth in international. Roughly 100 basis of top line growth is attributable to sales from our new China plant to the China joint venture, which we expect to begin in Q4. We anticipate adjusting EBITDA of -- we anticipate adjusted EBITDA of $560 million to $580 million or 10% to 14% year-over-year growth. This is especially impressive given that we won't repeat the roughly $20 million price/cost lag benefit from fiscal '20 and are likely to see unfavorable raw material costs pass-through impacts of $5 million to $10 million this year.
Fiscal 2021 adjusted EBITDA guidance, when combined with the 7% growth we just delivered, results in a 2-year adjusted EBITDA CAGR of 9% at the midpoint, ahead of the targets we set at our Investor Day in 2019. Overall, we expect the quarter-by-quarter performance to vary significantly year-over-year, with Q1 results declining sequentially given seasonally lower volumes and the impacts of recent raw material cost increases, but growing year-over-year. In Q2, we expect to be relatively flat year-over-year as we are comping a $14 million decrease in incentive compensation last year. We anticipate Q3 to be our strongest quarter of year-over-year top and bottom line growth due to the severe COVID-19 impacts we saw in 2020. And Q4 should return to a more normal growth pattern. We continue to expect our adjusted effective tax rate to be between 25% and 26%. Given our EBITDA growth and the increase in depreciation and amortization expense from our ongoing growth investments, we anticipate adjusted EPS in the $1.57 to $1.67 range.
With the significant unit growth in Quick Lubes from newly built and acquired stores, along with carryover capital in fiscal '20, we expect a moderate increase in fiscal 2021 capital expenditures. Expected increases in cash taxes of $40-plus million will largely offset higher pretax earnings, leading to free cash flow of $200 million to $220 million. I do want to emphasize that the guidance we are providing is dependent on current expectations, which could be significantly impacted by external factors surrounding COVID-19, such as incremental state, regional and country-specific restrictions or significant changes in miles driven, which we continue to monitor closely.
Now let me turn things back over to Sam to wrap up.
Thanks, Mary. We're pleased with the way we've been able to manage through the unique challenges this year from the ongoing COVID pandemic. We took decisive actions and our team focused on safety and adapted to working together and meeting customer needs in new ways. Our business performance over the last 5 years demonstrates the benefits of our preventive maintenance model. Our diverse product and service offerings across multiple geographies and channels have driven durable adjusted EBITDA growth and solid margins in the face of macro challenges, including raw material cost increases DIY market changes and now a global pandemic.
Over the past 5 years, we've generated $1.1 billion in free cash flow, averaging $220 million annually. As we did again in 2020, while making significant growth investments. We have consistently generated return on invested capital above 20%. We continue to invest in high-return projects with returns roughly 2x our cost of capital. As we realize the benefits of these investments, our return on invested capital is expected to remain strong, while growth accelerates.
Let's turn to the next slide. We anticipate 2021 to be an inflection point in our growth trajectory. We have made significant progress in core North America, and we're well positioned for growth in international. Most importantly, the investments we've made in Quick Lubes by building new company stores, making acquisitions and improving operational performance are working. We expect Quick Lubes to be more than half of our adjusted EBITDA next year. This is significant given the segment's high-margin and growth profile.
We expect 2021 to be a strong year for Valvoline as a we enter a faster phase of growth and accelerate the shift to a more service-driven business.
With that, I'll turn it back over to Sean to open the line for Q&A.
Thanks, Sam.
[Operator Instructions]
With that, Tenia, please open up the line.
[Operator Instructions]
And your first question comes from the line of Jeff Zekauskas with JPMorgan.
Is your general approach to base oil prices that they've risen because of hurricane-related outages and disruptions in the refinery area and that in the course of the next 12 months, they'll probably come down from the levels that they're at? Or do you have a different view?
Yes, Jeff, you're right. The hurricanes have had an impact on the base oil market. And the -- really, there were 2 base oil increases since last summer. The first I would say, was more tied to the increase in overall crude market, a modest increase and then the second, that will impact us as we go into Q1, tied to the hurricanes. As far as expectations for the future and what we've built into our guidance is really no change, no significant change following this recent round of base oil increases. It is possible that we could see decreases as capacity builds back up later this year. But we're not counting on that in terms of how we built our plan.
And can you talk about the fact that your China expansion will have on operating income or EBITDA in 2021, '22, '23 as that investment matures.
So Jeff, on the China plant, for our fiscal 21, we expect the China plant to actually have some onetime headwinds associated with the start-up, offsetting some of the potential benefits we have, we're going through processes of getting the appropriate approvals for the OEM business that we have through the joint venture in China.
So our fiscal '21 will continue to be relatively neutral to a modest headwind as a result of the China plant. We do expect that plant over the long-term to have a return on invested capital in the low double-digit range. And we invested -- we came in under budget, just under $70 million in terms of the project overall. So longer term, I do expect to see those benefits flow into the China business. And that includes the benefits of volume gains that we expect to see with better control of our supply chain within China.
So you hit that number in 2023, your return on capital target?
I think it's going to be out over -- as we look at the plant's production, we'll see the benefits of that build over time in terms of the investment horizon in the longer-term phase. So I'm not going to give specific guidance as it relates to beyond fiscal '21, but we are well-positioned to see that return on the planned investment we've seen over time.
Your next question comes from the line of Simeon Gutman with Morgan Stanley.
Nice results. My first question is the retail channel guidance that you gave for North America, I think you said flat or down 1% slightly. Can you talk about -- is that just the typical normal decline that you'd expect? And then can you talk about -- is that just from lower usage of oil? Or is that market share?
And part of that, Sam, you mentioned, I think, an outlook for stable private label pricing and that I think was driving the way you think about the business for next year. Can you talk about some of the assumptions in there? It sounds like a pretty typical year, but is there anything atypical with some of the inputs?
Yes. Yes. Let's first talk category, and then we'll talk Valvoline plans and performance expected. As far as the category goes, longer term, we've seen the category to be declining at about a 2%, 2.5% clip. And so next year, we don't see that really dramatically different. It's -- we're projecting it to be down maybe 1%, and that just has to do with the fact that there was weaker performance in the category during that March, April time period. But as you know, the DIY segment did recover quite quickly from the COVID impact. And so it wasn't as severe, say as the installer side of the business. So category next year, flat down to down 1%. We do expect Valvoline performance to be solid. As we mentioned in the presentation that we had flat DIY volume over the course of fiscal '20. So real pleased with that and even a little bit of growth in Q4. And so we have some good momentum with our plans going into fiscal '21. One of the most important factors we had predicted this and talked about the stabilization of our price gap versus private label that we would expect that into 2021 and as we've developed the merchandising plans for 2021 with each of our key accounts, we have a solid plan in place, and we don't see that gap expanding versus private label. In fact, some of the actions that we've taken with our plans, we've actually seen a nice contraction of that gap versus private label, and that's contributing to the solid performance that we've seen. So the category in DIY, there's some nice features about it with the continued growth in the synthetic segment. We're very much focused on growing our share in the synthetic segment with our marketing efforts, our advertising efforts, consumer promotion, trade promotion, all geared towards that. And so I think it represents another solid year in 2021 for the DIY business and the overall core North America.
We did point out, of course, in the presentation that we had some benefit of that short-term price/cost lag effect in fiscal '20 with that dramatic reduction that we had in crude prices and base oil prices going back to Q2, so we benefited from that. But as that has turned more into a modest headwind, that will have an impact on overall core North America. But nonetheless, when you look at the performance that we're expecting and what we're able to deliver in Q4, and as we move into next year, we're expecting very solid performance. Volume overall to be up and when you compare that profitability to where we were in 2019, a nice step up, including those overall unit margins that we pointed out.
Okay. And then my follow-up on the Quick Lubes side. The normalized 6% to 8% growth that you're expecting, is there anything built in for batteries? And do you -- where are you with that test? And do you need to push it? Or you just can take your time with it since the core business seems to be doing well?
Yes. Thanks. Yes, the core business for the Quick Lube segment is really strong. And so we see -- we saw the start of a very strong recovery going back to June. We increased our marketing investment in Q4 or restored it really. And we saw just excellent performance across our regions and good momentum into Q1 here, looking at our October same-store sales performance, continued solid performance, strong performance. The makeup of same-store sales is a nice combination of both growth in transactions and growth in ticket. So what this tells us is that we're continuing to win market share as we attract more new customers to our stores. And that has been the case for a number of years. It's great to see that continuing during this time, but also really strong ticket opportunities. And the one that you mentioned, our new battery program, is definitely going to be a contributor to our ticket growth in fiscal '21. So we're close to rolling that out across all of our company stores that will be completed by the end of this calendar year.
And then in calendar year 2021, it will roll across all of our franchise markets, too. And so for those that aren't familiar with it, we've been selling batteries for some time, but not nearly to the level that we felt we could with the right testing equipment and with the right supply chain. And so we've made some investments there that are really starting to pay off. And so in the early markets that rolled out, we're seeing increases doubling the sales of our batteries versus where we were before. So there's some really nice upside as we go into 2021 and beyond with the battery program. But ticket performance -- a lot of people want to understand how will we continue same-store sales growth, while miles driven continues to be softer than you would otherwise expect. It is because, number one, we're taking share. And number two, when it comes to ticket, we have these opportunities to increase our non-oil change revenue, continued growth in the premium mix of our oil changes. And then the pricing power that we have because of the strong service delivery that we continue to deliver. So it's really -- it's a great position for us to be in because, as I mentioned in the presentation, driving that operational improvement is the number one driver in our profitability in Quick Lubes. And then as you add in the levers of the new stores that are beginning to kick in, the stores that we've been building, that -- those haven't had an impact the last couple of years, but they will start to have an impact in fiscal '21, and that grows again in fiscal '22 and beyond.
Your next question comes from the line of Wendy Nicholson with Citi.
My question has to do with kind of the market that you may have gained. Over the last few months during the summer because you guys have a great brand, you had more stores open, maybe some of your competitors who are more of the mom-and-pop shops, shut down temporarily. And so I'm wondering, number one, is that crazy? Do you think you benefited from that during COVID? And also just -- and I'm thinking more on the Quick Lube side, obviously. But also as we go into the fall, I mean, this was the great summer of road trips, do you feel like, hey, part of the thinking in the guidance for the lower first quarter, is that everybody just got their oil changed in July, August, September? And so now I don't need to have it done for another 6 months. Is that credible thinking? Or is that off?
Wendy, most of it is right on in terms of how we gained market share by keeping our stores open during the depth of the impact back in that March, April, May time period. But I need to correct you when it comes to how we feel about Q1 and the momentum that we have in same-store sales growth. So we kept our stores open. That was a decision that we made even as we saw a pretty big negative impact. We worked with our franchisees so that they made the same decisions. And so being open definitely helped us recover faster, keeping our employees, our teams engaged at the store level with some higher compensation during that period. It really paid off for us, and we saw that particularly in Q4.
So when you think about next year, we're very confident in continuing to grow our same-store sales and our market share because of the success of the marketing programs that we put in place and just the momentum that we continue to have with that standard car model. I think that the safety aspects of the standard car model work really well for our customers in this environment. But it's just the continued delivery of that quick, easy, trusted customer experience continues to resonate with customers, with car owners today. And so I don't know that there was any benefit from, say, a lot more road trips this summer. The models driven did recover going into the summer from where we were back in March and April. But it's still -- it's kind of leveled off right now in that minus 10% range.
And so as we model next year, we haven't forecasted or built into our assumptions for same-store sales growth, a further recovery in miles driven. We hope that would be the case. I mean, that would be a nice tailwinds for us. But given continued impacts from the pandemic into next year, we still believe that we're going to be growing market share even as miles driven continues to be a bit soft. And we also think that we have these ticket opportunities that I mentioned in answering the earlier question, that's going to help us drive that same-store sales performance. So hopefully, that helps you understand the dynamics and how we're thinking about them.
And Sam, just to be really clear, Wendy, just to be crystal clear, we don't think our performance in Q4 was pent-up demand. We really -- we're continuing to see really strong performance with the start to Q1. And we think everything that Sam mentioned about the competitive advantages of our model will continue to drive our performance going forward. So we don't think it was a onetime thing in terms of what we experienced in Q4, we certainly are seeing a really strong start to the new fiscal year.
Fantastic. Fantastic. Okay. And then just on the M&A environment, again, thinking that there may be some operators out there who had a tougher time during COVID. I mean what are you seeing in terms of the M&A environment, maybe it's not the right time to be making more acquisitions, but rather just to be opening your own stores. Just generally, can you comment -- I mean, obviously, you've been doing a lot, but how much more room or how much more bandwidth do you think you have over the next 12 to 18 months to consolidate the market even more?
We think the M&A market is very attractive right now, but certainly, for smaller operators, less sophisticated operators, it has been a tough market. And so the work that we've been doing over the last couple of years to accelerate our growth through M&A and build a reputation as a great company to work with, to sell your business to, we see continued opportunities moving into 2021. So we've worked hard to develop relationships and that reputation and build that pipeline. So that's why we're pretty aggressive with our store growth forecast for 2021.
Both, acquisitions and the new store builds, generate very strong return on investment for us. So they're both really important levers for us to execute well against to continue to build our market share. And just as a reminder, our market share is still quite small in the overall do-it-for-me marketplace. While we have a good market share, of course, in Quick Lubes, most of our new customer growth is coming from outside the Quick Lube channel, about 2/3 comes from outside of Quick Lubes. And so as we build more stores, we're going to increase our share from roughly 4% of the DIFM marketplace to something much bigger than that. And so the runway for continued store growth through both building new stores and making acquisitions, really key for us to build out our network.
And our next question comes from the line of Mike Harrison with Seaport Global Securities.
Mike, are you there?
Or maybe come back to Mike.
Okay. Go ahead. Got you.
Sorry. So I wanted to go back and revisit a little bit of this discussion around miles driven, you mentioned that it's kind of leveled off in this minus 10% range. Yet in the Quick Lubes business, you show an 8% same-store sales number, understanding some of that's pricing an average ticket, but you really seem to be bucking this underlying data on driving activity. So is -- should we view that strength as just pure market share gain? Or are you seeing some other changes in how people are approaching vehicle maintenance even as they appear to be driving less?
Yes. The -- overall, I mean, it is the strength of our marketing programs and how we deliver the service and just our growing reputation in markets where we have stores. And when we look at driving behavior or maintenance behavior, we know that there are some car owners that really pay attention to how many miles they drive between oil changes, some are focused on their oil-change indicator life. Some are more geared towards the time of year. And we have seen that for those people that are more focused on timing for their maintenance services, that they've continued to maintain that even though they're driving, on average, a little bit less.
And you see this when we have the big drag in holidays is that our stores are very busy before the Labor Day weekend, for example, or before Thanksgiving, Christmas holidays. And that's because people see us as not just the oil change. It's the preventive maintenance services. It's making sure the car is ready for the road. So there's, I would say, some small changes that we think we're seeing in terms of those behaviors that benefit us and the relationship that we have with our customers and how they perceive the value that they get from visiting our stores. But for the most part, we're very confident that we're continuing to grow our market share as people discover the fact that we are so much more convenient than other traditional places for preventive maintenance services. And that we deliver it very efficiently and in a way that builds trust with our customers. So the model is really well-positioned for continued success in 2021 based on what consumers are looking for.
All right. And then on Slide 7, I think that the new set of data that you're providing to show that margin leverage in the core Quick Lube stores. Does that improvement that you're showing over time there suggests that we should see EBITDA margin eventually get back for the Quick Lube segment toward the high 20s level or even better over time as you kind of work through the new store ramp?
Yes, Mike, we do expect to see leverage in our EBITDA margins and Quick Lubes in 2021 and beyond. There are some other factors that impacted, including the mix of franchise and company stores. So as we accelerate through acquisition and building new company stores with a little bit higher company store mix, overall, the franchise stores do have a little bit -- they have a higher return on sale relative to company. And so that will moderate some of the pure leverage we're seeing with the same-store sales growth.
The other thing that we've talked about in the past is new stores do have some deleveraging impact as they go up that 3-year ramp curve. And we start -- as we level out with new stores coming on stream in that 50 new stores a year range, we should see that moderate going forward as well. But we do expect to see operating margin leverage in the Quick Lube business moving forward.
Your next question comes from the line of Olivia Tong with Bank of America.
Great. I want to start on Quick Lubes. And just if you can revisit how you think about company-owned versus franchise versus acquiring, given the plans to expand your store base and pretty nicely so far already this year. We talked a lot about how the M&A environment is a little bit more favorable given potentially some questions around moms-and-pops and how much they want to continue doing what they're doing. And just how you're thinking about this year or the near-term versus your longer-term plans of about 100 a year?
Yes. So first of all, Olivia, the opportunity for us, as we've described, is significant in terms of store growth. And so we want to pursue store growth in both our company markets and our franchisee markets. And so we're working closely with our franchisees and their development efforts where they have a position, where they have strength, and fortunately, with all the success that they've had with their businesses, they have the capital and the desire to grow their businesses. And they definitely have opportunities in their markets. So we're going to continue to support that in the company markets, and we have been moving pretty aggressively in new markets in both into the South into Virginia, Texas, for example, we're going to continue to be aggressive, both in our store development plan, our ground-ups, but also looking for acquisitions that could fit and help us fill in these markets or accelerate that growth.
So the important thing for us in the near term here, given the size of the growth opportunity, it's for us to really pull hard on each of the levers for driving that store growth. And I'm just really pleased with the success and the progress that we've made in ramping up our capabilities to build new stores. And then also the work of our corporate development team in developing those relationships and closing on those attractive acquisitions that helped us accelerate that growth. I do think longer term, we're going to have to work hard at some of the mom-and-pops that are more difficult to reach with our team on how we might consolidate more the smaller operators. But our focus over the last couple of years and into next year has really been more targeting the regional operators.
Got it. And then as miles driven obviously still under some pressure right now given the lower mobility on a year-over-year basis but what's been a nice benefit to you is obviously the price/mix benefit that you've seen more recently. So what's your view as miles driven eventually does improve? Can you hold on to that pricing mix benefit while also improving the underlying? Or does that potentially -- is there a little bit of giveback there?
Olivia, we really are well positioned to see tailwinds if we see that miles driven improve. So I think that the ticket improvements that we're seeing through the further penetration of non-oil change revenues, including the battery program Sam talked about earlier. The pricing power we have because of the unique nature and the high value of our service delivery model, and the overall premiumization tailwinds that are still in front of us, while close to -- we are in the high 60% from the premium side of the business, if you look at just the pure synthetic side of our penetration, that's only about 1/3 of our business within Quick Lubes, and there's a significant runway for continued synthetic penetration at the higher price points of our service levels pricing. So I think that we still have substantial opportunity as miles driven recovers over time to see even better top line results. Because I don't expect it to have an adverse impact on our pricing power.
Your next question comes from the line of Jason English with Goldman Sachs.
This is Cody on for Jason this morning. I just wanted to talk about International. Your guidance is calling for significant top line growth in the International segment, but moderating profit growth due to channel development and brand investments. If I look back in the history, you guys only grew volumes 2% in FY '18, down 1% in FY '19. Can you just remind us of the growth opportunity at hand in the International segment, especially as the China plant comes on? And why you felt that it was a better investment using those dollars than accelerating Quick Lubes growth?
Yes. So looking at our International business, this is a business that when we look at over the last 10 years, we've had really nice growth, and we've developed a solid business with each of our regions contributing meaningfully to our profit. And yet, you're correct in that '18, '19 growth had slowed with some of the pressures that we had seen in the marketplace. But nonetheless, we feel that the opportunities for Valvoline's growth in international markets is quite significant. And we've been working hard to develop our capabilities in each of the regions, developing our distribution networks, our supply chain, and we've made really good progress in doing that. And so those channel development efforts are now being supplemented with brand investments. And we've got some nice momentum as we go into fiscal '21 because of just the strength of our team, our operations and the focus that we have in our key regions.
So that's why we're confident about growth in the International business in '21 and and beyond. And really, it's solid growth across regions. I mentioned in the presentation that we had some softness, particularly in Latin America, as impacted by COVID-19. Even as some of those pressures still exist, the progress that we've made in some step-ups in our distribution and capabilities there.
We expect Latin America to be a nice contributor in fiscal '21, along with the growth that we expect to see in China, which, of course, saw a really rapid recovery in fiscal '20. Specifically in China, and the importance of that market, China has actually become the world's largest lubricants market when you add up both passenger car and heavy duty. And so Valvoline is committed to growing our business there. We've developed a strong team, and we have strengths with our partnership with Cummins on the heavy-duty side, and on the passenger car side, we've been making nice inroads and developing our distribution network. And so we're starting to see the benefits of that work. Having a plant there, that really benefits us similarly to how it benefited us in India. We built a plant in India, a very similar size to the one that we've just completed in China, about 5, 6 years ago, and it really strengthened our business in India. It's helped us grow, build our reputation in the marketplace, working more closely with the OEMs, improving our customer service levels, improving our margins.
And so we're using that same strategy in China to help build a long-term successful business in China. That investment, it's meaningful, it's significant, and it is a bit of a headwinds to us when it comes to our profitability next year as we grow into that plant. But longer term, as Mary laid out, it's going to have operational benefits beyond the strategic benefits. In no way, however, does that investment take away from the speed of growth and investment in the Quick Lubes business. We're not capital constrained. We don't see that as being a limiter for us. For us, it's been just going as hard as we can go with developing those capabilities and building stores, building new stores, which, again, we've made great progress on and also making the acquisitions.
So I feel great about where we are with those efforts and the guidance that we've given for '21 to deliver store growth in the 150 store range. That's a really nice step-up from where we've been. And we're going to continue to be on the gas with the store growth in the North American Quick Lube market. And for China, in the International business, we're in a good position.
Just as a reminder, the International business, it's not a capital-intensive business. It's got some similarities to the core North American business. That's a bit more product-driven, of course. And so the investment in China was a pretty unique investment in that we're not looking to be adding plants in our international markets on a regular basis. It's really when the size of the market opportunity and the business is right for that, and so when we look out over the next planning cycle here, we're not planning any major capital investments in the International business. Instead, we expect very strong return on invested capital internationally and good, solid growth. The investments that we're talking about making is more on the SG&A side and adding to our teams and better penetrating the market and then, of course, investing in the brand. But again, we believe that the International business is on -- is in a good position to deliver top line growth in the high single digits and bottom line growth, pretty close to that.
And Cody, I would also remind you that China surpassed the U.S. as the #1 lubricants market in the world last year. So we really think it's important for us to have an important -- a meaningful position there as that market moves to higher premium technology products as their emission standards and the regulations improve, we think there's a meaningful profit opportunity for us in growth. And that supply chain investment, we thought, we believe, is really going to support us in that expanding growth in that marketplace.
And I'd add that we're also piloting retail stores in China too now. And so that could be a nice long-term growth opportunity for us also.
I appreciate the thorough response. Just one quick housekeeping question. Your EBITDA guidance costs are about 12% growth. But if I back into cash flow from operations, it's roughly flat. Can you just describe what's going on there, what the delta is?
Yes, the largest delta, Cody, is cash tax increase, which is going up by more than $40 million in cash taxes. In fiscal '20, we had continued to benefit from the large borrower-to-fund transaction we had done in 2018, which had allowed us to use our foreign tax credits and beyond the NOL that we had from that large borrower-to-fund transaction. And we've kind of used up those deferred tax assets. And so we've been able to keep our cash tax liabilities down for the last few years, but we're back in 2021 to a more normal cash tax payment. So the largest driver of that is the substantial increase in cash taxes.
Your next question comes from the line of Chris Shaw with Monness Crespi.
A quick -- just another sort of market share question. I assume that some of the third quarter market share was from dealers. I think the dealers were closed very decent part of that quarter. I know you guys tracked metrics, I think, pretty well. Do you have any sense that customer -- new customers you gained, say, in 3Q, are you keeping them? It might be -- I know too soon, given that, I guess, people want to probably get oil changes once a quarter, but any sense to the stickiness of the customer lens?
Yes. You're right. It is a little bit early in terms of retention of the new customers that we gained in Q3, but we'll start to get a stronger read on that in the next quarter. But again, based on the trends that we're seeing as more of those competing installer outlets have opened up, our trends have remained very solid, very consistent.
We historically have had very strong retention rates when we see new customers come in the door. It's well in excess of 50% after the first visit and well in excess of 70% after the second visit. So my belief is that the historical view, the historical -- what we've seen in retention rates, combined with the stay-in-your-car service model and what continues to be a challenging COVID transmission environment, will continue to encourage both customer market share gains as well as retention within market share itself. So I'm very optimistic about our ability to retain those customers.
And just quickly, do you have any sense of the financial health of sort of the industry, maybe some of the smaller players? And any sort of maybe financial stress that -- and was that involved in the recent acquisitions you did, with sort of small retail chains you bought?
Chris, the acquisitions we've done that we've closed on here in October, have been from some pretty healthy operators. They've got really good models. We are a really strong operations-focused model. And the ones -- the deals that we've done came from very strong operators. So while we certainly think that there's more opportunities out there, especially in the very small mom-and-pop areas, and we are seeing those -- the deals that we've announced recently and completed has been in what I would call pretty financially healthy operators.
With that said though -- there -- we do expect that some of the weaker operators that have struggled in this market could be attractive acquisitions for us too and maybe more interested in selling after the challenges of last year and even the challenges moving into next year. So when we look at acquisitions, we run our real estate model to understand the location really well and what the potential is of that location. And we have some good success in making acquisitions where the performance has a lot of upside, both in terms of the number of transactions, but also the ticket when you add the Valvoline brand, the Valvoline marketing programs and that service execution that we can deliver.
Great. Congrats on that result.
Thank you.
And our final question comes from the line of Laurence Alexander with Jefferies.
So 2 quick questions. So first, can you give a sense for the longer-term opportunity to accelerate growth in China through partnerships or acquisitions? What kind of cadence, if you did -- decided to deploy capital if the right opportunities came available, could be feasible as an upper limit? And secondly, for Quick Lubes, the longer-term outlook, why shouldn't the base case for the number of new stores accelerate as you get scale and as your free cash flow improves, should we be thinking about 75, 100 new stores in 2025 rather than 50-plus?
Yes. So first of all, with regard to China, we do have a number of avenues for driving growth. And we are focused on how do we strengthen both our business in the heavy-duty side and the passenger car side. With regard to the passenger car market, which is large and continuing to grow at a nice rate, we're making investments in our brand and the channel development that we talked about. And we do expect that with the plant and improving our business with the OEMs, that this is going to help us continue to grow.
The area of potential partnership, and we do have a partnership for the stores, the retail stores that are in pilot. We have a partner there that is working with us and bringing that local expertise. That's where we think it's potentially most important to have strong partners with local market expertise that can help us as we think about the retail opportunity. And it's encouraging that some of the early results that we've seen, the progress that we see in those stores are obviously -- the capital investment is much lower than the type of investment required here in the U.S. It's a different type of stores. It's not, say, that the exact same model as our quickly market as we think about it here, but we're learning and developing better insights on how we think about that market. And we think the opportunity in China, the long-term opportunity, is in this high-quality alternative to the car dealership. And so the car population, the car park is -- the age of the car is still relatively low, roughly about 6 years compared to the U.S. market, which is in the -- I think it's in the 11 to 12-year range. And so you have a number of car owners relatively new car owners who are going to be looking for more convenient options and more cost-effective options than going back to the dealership, but not necessarily back to the old school corner mechanic.
And so that's what we see as the opportunity and that we're going to continue to invest our time and efforts to try to unlock that puzzle and hopefully create another growth opportunity for Valvoline in China. Coming back to then the growth in the U.S. market and particularly with the ground-ups, building new stores, the again, we're really pleased with our progress. And basically, when we separated from Ashland 4 years ago, we weren't -- we didn't have any infrastructure to be building new stores. We didn't have that possibility. But as we've been able to invest back in our business, we've built the capabilities and the team that has now been ramping up that store growth, so that we expect to deliver that 50 new stores next year. It's not a short cycle, though.
So it's a little bit different than some retailers that can can slap up a new store in a strip center. We're talking about an 18-month cycle for each new store that gets built. And so the important thing is to be investing in that pipeline, building that pipeline and that's what we've been doing. So the work that we're doing today is preparing us for fiscal 2022 growth. And we're going to be looking for opportunities to accelerate that growth from 50 to a higher number. We're not yet ready to commit to what that number is. But as we build those capabilities and see success of these new stores, we're seeing just how important it is to -- for that to be part of our growth plan. And at the same time, of course, making the acquisitions, which, of course, we're seeing really good progress on.
So I'm personally really pleased with the progress of both our store development team and our corporate development team and how they've been able to accelerate our overall store growth. And I would add the franchise development team, too, as we all work together to drive store growth to lean into this tremendous growth opportunity, we're seeing excellent progress. And yet we know how big the opportunity is. So we're going to keep looking for ways to expand each one of those. All right. Well, it sounds like that is the end of the questions. And let me just say again, what an incredible year it has been for the Valvoline business, the Valvoline team, couldn't be more pleased with how they responded and we're really well-positioned. As I mentioned in the presentation, we do see this year as a really key year in fiscal '21 to show that this business and its growth profile is stronger than it's ever been. And so we see it as a point of accelerating growth that's provided in our guidance. We feel very confident in that. And that's still in the face of the challenges of COVID-19. And so our hope is, of course, that as we move beyond the pandemic that, that creates the tailwinds for us and good for everyone on this call today. But again, appreciate everyone's interest in what we're able to accomplish this past year. And I want to make sure that everyone understands how we feel about a very bright future for Valvoline moving into 2021 and beyond. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.