WINMARK CORPORATION'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 29, 2025
Winmark Corporation, a Minnesota-based company, reported its quarterly financial results for the period ended March 29, 2025. The company’s consolidated condensed balance sheet as of March 29, 2025, showed total assets of $123.1 million and total liabilities of $64.4 million, resulting in a shareholders’ equity of $58.7 million. For the three months ended March 29, 2025, the company reported net sales of $34.1 million, a 12% increase from the same period last year, and net income of $2.3 million, a 15% increase from the same period last year. The company’s cash and cash equivalents increased by $1.4 million during the quarter, and its accounts receivable and inventory levels remained relatively stable. The company’s management discussed its financial performance and outlook in its MD&A, highlighting its strong sales growth and improved profitability.
Financial Performance Overview
The company’s financial report for the three months ended March 29, 2025 shows a solid performance with an increase in overall revenue compared to the same period in the previous year. The key highlights are:
- Total revenue increased by 9% to $21.9 million, driven by growth in royalties, leasing income, and franchise fees.
- Royalties, the largest revenue stream, grew by 2.9% to $17.8 million due to an increase in the number of franchise stores.
- Leasing income more than doubled to $2.3 million, primarily due to the settlement of outstanding customer litigation.
- Merchandise sales to franchisees decreased by 18.2% to $0.9 million, reflecting lower technology purchases by franchisees.
- Selling, general, and administrative expenses increased by 9.1% to $7.4 million, mainly due to a non-recurring expense for third-party software licenses.
- Operating income from the franchising segment decreased slightly to $11.4 million, while income from the other operating segment increased to $2.3 million.
- The company maintained a strong liquidity position, with $22.0 million in cash, cash equivalents, and restricted cash at the end of the quarter.
Revenue and Profit Trends
The company’s revenue growth was driven by the following key factors:
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Total Revenue | $21.9 million | $20.1 million | +9% |
| Royalties | $17.8 million | $17.3 million | +2.9% |
| Franchise Fees | $0.3 million | $0.4 million | -25% |
| Leasing Income | $2.3 million | $0.8 million | +187.5% |
| Merchandise Sales | $0.9 million | $1.1 million | -18.2% |
The increase in royalties was driven by the addition of new franchise stores, while the surge in leasing income was due to a one-time settlement of customer litigation. Merchandise sales to franchisees declined due to lower technology purchases.
On the profitability side, the company’s operating income from the franchising segment decreased slightly, while income from the other operating segment (primarily the equipment leasing business) increased significantly. Overall, the company maintained a healthy profit margin, with an effective tax rate of around 24%.
Strengths and Weaknesses
Strengths:
- Steady growth in the core franchising business, with increasing royalty revenue
- Diversified revenue streams, including leasing income and franchise fees
- Strong liquidity position with $22 million in cash and cash equivalents
- Prudent financial management, with compliance with debt covenants and a focus on shareholder returns
Weaknesses:
- Decline in merchandise sales to franchisees, indicating potential challenges in the supply chain or technology offerings
- Increase in selling, general, and administrative expenses, which could put pressure on profitability if the trend continues
- Reliance on a single large customer (the equipment leasing business) for a significant portion of “other” operating income
Outlook and Future Prospects
The company appears to be in a strong financial position, with a solid liquidity profile and a diversified revenue base. The core franchising business continues to grow, and the company has been able to generate additional income from its equipment leasing operations.
However, the decline in merchandise sales to franchisees and the increase in operating expenses are areas that the company will need to monitor closely. Additionally, the expiration of the Shelf Agreement in April 2025 may require the company to explore alternative financing options in the future.
Overall, the company’s financial performance in the first quarter of 2025 suggests a stable and resilient business model, with opportunities for further growth and diversification. As long as the company can effectively manage its costs and continue to innovate its product and service offerings, it should be well-positioned to navigate the challenges and capitalize on the opportunities in the years ahead.
