Winmark Corp (WINA) - Q2 2025 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 28, 2025, and the six months ended on that date. Winmark Corporation operates as a franchisor of value-oriented retail concepts (Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore, and Music Go Round) and maintains a run-off equipment leasing business (Winmark Capital). As of June 28, 2025, the company operated 1,371 franchises.
Key Financial Metrics
| Metric | Q2 2025 (3 Months) | Q2 2024 (3 Months) | YTD 2025 (6 Months) | YTD 2024 (6 Months) |
|---|---|---|---|---|
| Total Revenue | $20.42 million | $20.12 million | $42.34 million | $40.23 million |
| Net Income | $10.60 million | $10.43 million | $20.56 million | $19.25 million |
| Diluted EPS | $2.89 | $2.85 | $5.60 | $5.26 |
| Operating Cash Flow (YTD) | $24.12 million (2025) vs $21.59 million (2024) | |||
| Cash & Equivalents | $28.77 million (as of June 28, 2025) | |||
| Total Debt | $59.95 million ($30M Term Loan + $30M Notes Payable) | |||
| Operating Margin (YTD) | 63.0% (2025) vs 62.7% (2024) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 5.0% in Q2 and 5.2% YTD compared to the prior year. Royalty revenue, the primary driver, grew 5.0% in Q2 and 4.0% YTD due to additional franchise stores and higher retail sales.
- Leasing Income Volatility: Leasing income dropped significantly in Q2 2025 ($46.6k) compared to Q2 2024 ($524.4k) as the portfolio runs off. However, YTD leasing income was higher ($2.35M vs $1.36M) due to a $2.2M settlement of customer litigation in the first half of 2025.
- Expense Increases: Selling, General, and Administrative (SG&A) expenses rose 5.6% in Q2 and 7.4% YTD. The YTD increase included a non-recurring expense for third-party software licenses and higher technology/compensation costs.
- Shareholder Returns: The company paid cash dividends of $0.90 per share in Q1 and $0.96 per share in Q2. Additionally, the company repurchased 7,944 shares of common stock for $2.42 million during the first six months of 2025.
Outlook, Risks, and Management Commentary
- Franchise Health: Management highlights a 98% renewal rate (60 of 61 agreements renewed) in the first half of 2025, indicating strong franchisee retention.
- Leasing Run-off: The company is no longer soliciting new leasing customers. Management anticipates leasing income will be lower in the remaining quarters of 2025 compared to the last two quarters of 2024, following the litigation settlement.
- Liquidity: The company maintains $20.0 million in available capacity under its Line of Credit and believes current cash and operating cash flows are sufficient to fund operations through 2026.
- Risks: The filing references standard risk factors from the 2024 10-K, including dependence on franchisee performance, interest rate risk on variable debt, and the potential inability to refinance debt on favorable terms.
Investor Verification Checklist
- Verify the sustainability of royalty growth given the 5.0% Q2 increase and the impact of new store openings vs. same-store sales.
- Confirm the one-time nature of the $2.2M litigation settlement included in YTD leasing income to avoid overestimating future leasing cash flows.
- Monitor the trend in SG&A expenses, specifically the non-recurring software license costs, to assess future margin pressure.
- Review the remaining capacity under the $20M Line of Credit and the maturity profile of the $30M delayed draw term loan (maturing 2029).
- Track the execution of the remaining 70,656 shares authorized for repurchase under the current plan.