Business Context and Reporting Period
Company: Grow Biz International, Inc. (Note: Metadata listed "Winmark Corp," but the filing text identifies the registrant as Grow Biz International, Inc.)
Reporting Period: Quarter ended March 28, 1998.
Business Model: Franchisor of six retail concepts (Play It Again Sports, Once Upon A Child, Computer Renaissance, Music Go Round, Disc Go Round, It's About Games) that buy, sell, trade, and consign used and new merchandise. The company also operates corporate-owned stores and sells inventory to franchisees via a buying group.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Total Revenue | $25,623,400 | $19,109,400 |
| Net Income | $690,900 | $545,200 |
| Diluted EPS | $0.11 | $0.09 |
| Operating Cash Flow | $3,109,200 | $2,572,700 |
| Cash and Equivalents (End) | $5,020,500 | $3,344,200 |
| Current Ratio | 1.5:1 | N/A |
| Long-Term Debt | $3,483,300 | N/A |
| Current Maturities of Debt | $2,134,200 | N/A |
Revenue Composition: Merchandise sales ($20.2M), Royalties ($4.7M), Franchise fees ($0.5M), Advertising/Other ($0.2M).
Profit Margins: Net income margin was 2.7% in Q1 1998 compared to 2.9% in Q1 1997.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 34.1% year-over-year, driven primarily by a 40.4% increase in merchandise sales.
- Store Count: Total store count increased from 1,303 to 1,305. Notable activity included the acquisition of 40 Video Game Exchange (VGE) stores in August 1997, which significantly boosted retail sales (up 165.1% YoY).
- Expenses: Selling, General, and Administrative (SG&A) expenses rose 39.2% to $7.8M, largely due to costs associated with operating the newly acquired VGE stores.
- Interest: Shifted from net interest income of $70,500 in 1997 to net interest expense of $39,200 in 1998 due to debt incurred for the VGE acquisition.
- Share Repurchases: The company repurchased 56,373 shares at an average price of $12.13 per share during the quarter.
Guidance, Outlook, and Risks
- Expansion Plans: The company anticipates opening 25 additional company-owned stores in 1998, aiming for a total of over 85 corporate stores by year-end. Store openings for the 12 months ended Dec 26, 1998, are expected to be consistent with the prior year.
- New Acquisition: In April 1998, the company acquired assets and franchising rights of Tool Traders, Inc. for $380,200 plus future royalties. The concept will be rebranded as "ReTool" with franchising expected in the second half of 1998.
- Liquidity: The company maintains a $5.0 million committed revolving line of credit due for renewal on July 31, 1998. Availability is reduced by a $2.0 million letter of credit issued for litigation purposes.
- Litigation Risk: The company is appealing a February 1998 court ruling requiring a $2.0 million payment to a former partner regarding development rights. This amount was recognized as a non-operating expense in 1997.
- Forward-Looking Risks: Success depends on attracting qualified franchisees, collecting receivables, acquiring high-quality used merchandise, and controlling SG&A expenses.
Investor Verification Checklist
- Debt Renewal: Verify the status of the $5.0 million revolving credit line renewal due July 31, 1998, and the impact of the $2.0 million letter of credit on available liquidity.
- Litigation Outcome: Monitor the appeal of the Van Buskirk litigation ruling requiring a $2.0 million payment to ensure no additional financial exposure.
- ReTool Integration: Assess the progress of the Tool Traders acquisition and the timeline for launching the "ReTool" franchise concept.
- Corporate Store Performance: Review the profitability of the 40 acquired Video Game Exchange stores and the 25 planned new openings to ensure they meet margin expectations.
- Share Count: Confirm the impact of ongoing share repurchases (1.5M shares repurchased since 1995) on earnings per share dilution/accretion.