Winmark Corp (WINA) 10-K Summary: Fiscal Year Ended December 28, 2024
Business Context and Reporting Period
Winmark Corporation is a franchisor of five resale brands: Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore, and Music Go Round. The company operates a franchise model where franchisees buy and sell gently used merchandise. As of December 28, 2024, there were 1,350 franchised stores in operation across the United States and Canada. The reporting period covers the fiscal year ended December 28, 2024.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Total Revenue | $81.3 million | $83.2 million |
| Net Income | $40.0 million | $40.2 million |
| Operating Income | $52.9 million | $53.3 million |
| Operating Margin | 65.1% | 64.0% |
| Cash from Operations | $42.2 million | $44.0 million |
| Cash & Equivalents (End of Period) | $12.3 million | $13.4 million |
| Total Debt Outstanding | $60.0 million | $64.2 million |
| Earnings Per Share (Diluted) | $10.89 | $11.04 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 2.3% to $81.3 million, primarily driven by a 62% drop in leasing income as the company continues to run off its equipment leasing portfolio.
- Royalty Growth: Royalties, the core revenue stream, increased 2.8% to $72.2 million due to additional franchise stores and system-wide sales growth.
- Leasing Run-off: Leasing income fell to $1.8 million from $4.8 million. The net investment in leases was effectively zero at year-end.
- Store Count: Net store growth was 31 units (47 opened, 16 closed), bringing the total to 1,350. Renewal rates remained strong at 98%.
- Dividends: The company paid $38.9 million in cash dividends, including a $7.50 per share special dividend.
Outlook, Risks, and Management Commentary
Management emphasizes the sustainability of the resale model and the strength of franchise renewals. The company expects to fund operations and debt service through operating cash flows. Key risks identified include:
- Franchise Renewals: Dependence on renewing 10-year franchise agreements; 118 agreements expire in 2025.
- Competition: Intense competition from online marketplaces (eBay, Poshmark) and traditional retailers.
- Supply Chain: Reliance on the public supply of used merchandise, which can be irregular.
- Debt Covenants: Compliance with financial covenants regarding debt service coverage and leverage ratios is required.
Investor Verification Checklist
- Verify the sustainability of royalty growth rates against system-wide sales trends.
- Monitor the 2025 franchise renewal rate, as 118 agreements are up for renewal.
- Confirm the timeline for the complete run-off of the equipment leasing portfolio.
- Review the company's ability to maintain debt covenants given the $60 million debt load.
- Assess the impact of the $38.9 million dividend payout on future liquidity and capital allocation.