WINMARK CORP
For the period ended Jun 29, 2024. Filed Jul 17, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 29, 2024 · Filed Jul 17, 2024
WINA$265.23-1.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-30; filed 2024-04-17.
0000908315-24-000023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-29; filed 2024-07-17.
0000908315-24-000031
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 51 previous paragraphs and 73 current paragraphs.
26 unchanged; 23 reworded; 19 added; 1 removed; 1 previous and 5 current paragraphs rearranged.
Tables are not compared: 2 previous and 2 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
Royalties increased to $17.8 million for the second quarter of 2024 from $17.1 million for the second quarter of 2023, a 3.9% increase. The increase is primarily from having additional franchise stores in the second quarter of 2024 compared to the same period in 2023, and to a lesser extent, increases in franchisee retail sales.
Current report
Selling, general and administrative expenses increased 7.4% to $6.2 million in the second quarter of 2024 compared to $5.8 million in the same period of 2023. The increase was primarily due to increases in advertising related expenses.
Current report
Comparison of Six Months Ended June 29, 2024 to Six Months Ended July 1, 2023
Current report
Revenue
Current report
Revenues for the first six months of 2024 totaled $40.2 million compared to $40.9 million for the comparable period in 2023.
Current report
Royalties and Franchise Fees
Current report
Franchise fees of $0.7 million for the first six months of 2024 compared to $0.8 million for the first six months of 2023.
Current report
Leasing Income
Current report
Merchandise Sales
Current report
Cost of Merchandise Sold
Current report
Selling, General and Administrative
Current report
Interest Expense
Current report
Interest expense was $1.5 million for the first six months of 2024 compared to $1.6 million for the first six months of 2023. The decrease is primarily due to lower average borrowings when compared to the same period last year.
Current report
Income Taxes
Current report
The other operating segment income for the second quarter of 2024 decreased to $0.4 million from $0.9 million for the second quarter of 2023. The decrease in segment contribution was due to a decrease in leasing income net of leasing expense.
Current report
Segment Comparison of Six Months Ended June 29, 2024 to Six Months Ended July 1, 2023
Current report
Franchising Segment Income
Current report
Other Operating Segment Income
Current report
Operating activities provided $21.6 million of cash during the first six months of 2024, compared to $23.2 million provided during the same period last year. The decrease in cash provided by operating activities during the first six months of 2024 compared to 2023 was primarily due to an increase in cash paid for income taxes and a decrease in principal collections on lease receivables.
Removed paragraphs (1)
Previous report
Operating activities provided $13.4 million of cash during the first three months of 2024 compared to $13.9 million provided during the first three months of last year.
Reworded paragraphs (23)
Previous wording
Winmark - the Resale Company is focused on sustainability and small business formation. As of March 30, 2024, we had 1,327 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.
Current wording
Winmark – the Resale Company is focused on sustainability and small business formation. As of June 29, 2024, we had 1,336 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.
Previous wording
Our most significant source of revenue is royalties received from our franchisees. During the first three months of 2024, our royalties increased $0.5 million or 3.1% compared to the first three months of 2023.
Current wording
Our most significant source of franchising revenue is royalties received from our franchisees. During the first six months of 2024, our royalties increased $1.2 million or 3.5% compared to the first six months of 2023.
Previous wording
Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries, wages and benefits, advertising, conferences, travel, occupancy, legal and professional fees. During the first three months of 2024, selling, general and administrative expenses increased $0.2 million, or 2.7% compared to the first three months of 2023.
Current wording
Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries, wages and benefits, advertising, conferences, travel, occupancy, legal and professional fees. During the first six months of 2024, selling, general and administrative expenses increased $0.6 million, or 4.9% compared to the first six months of 2023.
Previous wording
Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals. The following is a summary of our net store growth and renewal activity for the first three months ended March 30, 2024:
Current wording
Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals. The following is a summary of our net store growth and renewal activity for the first six months ended June 29, 2024:
Previous wording
Renewal activity is a key focus area for management. Our franchisees sign 10-year agreements with us. The renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties. During the first three months of 2024, we renewed 38 of the 39 franchise agreements available for renewal.
Current wording
Renewal activity is a key focus area for management. Our franchisees sign 10-year agreements with us. The renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties. During the first six months of 2024, we renewed 71 of the 72 franchise agreements available for renewal.
Previous wording
In May 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of our middle-market leasing portfolio. Leasing income net of leasing expense for the first three months of 2024 was $0.8 million compared to $1.3 million in the first three months of 2023. Given the decision to run-off the portfolio, we anticipate that leasing income net of leasing expense will continue to decrease through the run-off period.
Current wording
In May 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of our middle-market leasing portfolio. Leasing income net of leasing expense for the first six months of 2024 was $1.3 million compared to $2.3 million in the first six months of 2023. Given the decision to run-off the portfolio, we anticipate that leasing income net of leasing expense will continue to decrease through the run-off period.
Previous wording
Revenues for the quarter ended March 30, 2024 totaled $20.1 million compared to $20.5 million for the comparable period in 2023.
Current wording
Revenues for the quarter ended June 29, 2024 totaled $20.1 million compared to $20.4 million for the comparable period in 2023.
Previous wording
Franchise fees of $0.4 million for the first three months of 2024 were comparable to $0.4 million for the first three months of 2023.
Current wording
Franchise fees of $0.4 million for the second quarter of 2024 were comparable to $0.4 million for the second quarter of 2023.
Previous wording
Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales decreased to $1.1 million for the first quarter of 2024 compared to $1.3 million in the same period of 2023. The decrease is primarily due to a decrease in buying group purchases by our franchisees.
Current wording
Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales decreased to $0.9 million for the second quarter of 2024 compared to $1.3 million in the same period of 2023. The decrease is due to a decrease in buying group and technology purchases by our franchisees.
Previous wording
Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $1.0 million for the first quarter of 2024 compared to $1.2 million in the same period of 2023. The decrease was primarily due to a decrease in Direct Franchisee Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first quarter of 2024 and 2023 was 93.6% and 93.0%, respectively.
Current wording
Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $0.9 million for the second quarter of 2024 compared to $1.2 million in the same period of 2023. The decrease is due to a decrease in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2024 and 2023 was 93.0% and 94.0%, respectively.
Previous wording
Interest expense decreased to $0.7 million for the first quarter of 2024 compared to $0.8 million for the first quarter of 2023. The decrease is primarily due to lower average corporate borrowings when compared to the same period last year.
Current wording
Interest expense decreased to $0.7 million for the second quarter of 2024 compared to $0.8 million for the second quarter of 2023. The decrease is primarily due to lower average borrowing when compared to the same period last year.
Previous wording
Royalties increased to $17.3 million for the first three months of 2024 from $16.7 million for the first three months of 2023, an 3.1% increase. The increase is primarily from higher franchisee retail sales and from having additional franchise stores in the first three months of 2024 compared to the same period in 2023.
Current wording
Royalties increased to $35.0 million for the first six months of 2024 from $33.9 million for the first six months of 2023, a 3.5% increase. The increase is primarily from having additional franchise stores in the second quarter of 2024 compared to the same period in 2023, and to a lesser extent, increases in franchisee retail sales.
Previous wording
Leasing income decreased to $0.8 million for the first quarter of 2024 compared to $1.6 million for the same period in 2023. The decrease is primarily due to lower levels of equipment sales to customers and a decrease in operating lease income when compared to last year.
Current wording
Leasing income decreased to $1.4 million for the first six months of 2024 compared to $2.7 million for the same period in 2023. The decrease is primarily due to a decrease in operating lease income and a lower level of equipment sales to customers when compared to the same period last year.
Previous wording
Selling, general and administrative expenses increased 2.7% to $6.8 million in the first quarter of 2024 from $6.6 million in the same period of 2023. The increase was primarily due to an increase in outside services.
Current wording
Selling, general and administrative expenses increased 4.9% to $13.1 million in the first six months of 2024 compared to $12.4 million in the same period of 2023. The increase was primarily due to an increase in advertising related expenses and outside services.
Previous wording
The provision for income taxes was calculated at an effective rate of 24.4% and 23.7% for the first quarter of 2024 and 2023, respectively. The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options.
Current wording
The provision for income taxes was calculated at an effective rate of 20.6% and 21.1% for the first six months of 2024 and 2023, respectively. The decrease is primarily due to higher tax benefits on the exercise of non-qualified stock options.
Previous wording
The franchising segment’s operating income for the first quarter of 2024 of $11.5 million was up from $11.2 million for the first quarter of 2023. The increase in segment contribution was primarily due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.
Current wording
The franchising segment’s operating income for the second quarter of 2024 increased to $12.6 million from $12.4 million for the second quarter of 2023. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.
Previous wording
Other operating segment income for the first quarter of 2024 decreased to $0.7 million from $1.2 million for the first quarter of 2023. The decrease in segment contribution was due to a decrease in leasing income net of leasing expenses.
Current wording
The other operating segment income for the first six months of 2024 decreased to $1.2 million from $2.0 million for the first six months of 2023. The decrease in segment contribution was due to a decrease in leasing income net of leasing expenses.
Previous wording
Our primary sources of liquidity have historically been cash flow from operations and borrowings. The components of the consolidated condensed statements of operations that reduce our net income but do not affect our liquidity include non-cash items for depreciation and amortization and compensation expense related to stock options.
Current wording
Our primary sources of liquidity have historically been cash flows from operations and borrowings. The components of the consolidated condensed statements of operations that reduce our net income but do not affect our liquidity include non-cash items for depreciation and amortization and compensation expense related to stock options.
Previous wording
We ended the first quarter of 2024 with $22.9 million in cash, cash equivalents and restricted cash compared to $24.6 million in cash, cash equivalents and restricted cash at the end of the first quarter of 2023.
Current wording
We ended the second quarter of 2024 with $29.4 million in cash, cash equivalents and restricted cash compared to $32.4 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2023.
Previous wording
Investing activities used $0.1 million of cash during the first three months of 2024. The 2024 activities consisted of the purchase of property and equipment.
Current wording
Investing activities used $0.2 million of cash during the first six months of 2024, compared to $0.1 million used during the same period last year. The 2024 activities consisted of the purchase of property and equipment.
Previous wording
Financing activities used $3.8 million of cash during the first three months of 2024. Our most significant financing activities during the first three months of 2024 consisted of $2.8 million for the payment of dividends and payments on notes payable of $1.1 million; partially offset by $0.1 million of proceeds from exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit) and Note 9 – “Debt”).
Current wording
Financing activities used $5.4 million of cash during the first six months of 2024. Our most significant financing activities during the first six months of 2024 consisted of $6.0 million for the payment of dividends and payments on notes payable of $2.1 million; partially offset by $2.7 million of proceeds from exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit),” and Note 9 — “Debt”).
Previous wording
Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential. These facilities have been and will continue to be used for general corporate purposes, are secured by a lien against substantially all of our assets, contain customary financial conditions and covenants, and require maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the agreements
Current wording
Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential. These facilities have been and will continue to be used for general corporate purposes, are secured by a lien against substantially all of our assets, contain customary financial conditions and covenants, and require maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the agreements governing the facilities). As of June 29, 2024, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement.
Previous wording
The Shelf Agreement allows us to offer privately negotiated senior notes to Prudential in an aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the Note Agreement, which at March 30, 2024 was $38.1 million). As of March 30, 2024, we had not issued any notes under the Shelf Agreement. Of the $38.1 million of principal outstanding under the Note Agreement, $8.1 million amortizes over the remainder of 2024 through 2027, and $30.0 million matures in 2028.
Current wording
The Shelf Agreement allows us to offer privately negotiated senior notes to Prudential in an aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the Note Agreement, which at June 29, 2024 was $37.1 million). As of June 29, 2024, we had not issued any notes under the Shelf Agreement. Of the $37.1 million of principal outstanding under the Note Agreement, $7.1 million amortizes over the remainder of 2024 through 2027, and $30.0 million matures in 2028.
Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
Leasing income decreased to $0.5 million for the second quarter of 2024 compared to $1.0 million for the same period in 2023. The decrease is primarily due to a decrease in operating lease income when compared to last year.
Current report — wording carried from elsewhere
The provision for income taxes was calculated at an effective rate of 17.1% and 18.8% for the second quarter of 2024 and 2023, respectively. The decrease is primarily due to higher benefits on the exercise of non-qualified stock options.
Current report — wording carried from elsewhere
Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”). Direct Franchisee Sales decreased to $2.0 million for the first six months of 2024 compared to $2.6 million in the same period of 2023. The decrease is primarily due to a decrease in buying group and technology purchases by our franchisees.
Current report — wording carried from elsewhere
Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold decreased to $1.9 million for the first six months of 2024 compared to $2.4 million in the same period of 2023. The decrease is due to a decrease in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first six months of 2024 and 2023 was 93.3% and 93.5%, respectively.
Current report — wording carried from elsewhere
The franchising segment operating income for the first six months of 2024 increased to $24.1 million from $23.6 million for the first six months of 2023. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
governing the facilities). As of March 30, 2024, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement.