WINMARK CORP

Previous wording

Winmark – the Resale Company is focused on sustainability and small business formation. As of September 28, 2024, we had 1,343 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 March 29, 2025, we had 1,363 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 franchising revenue is royalties received from our franchisees. During the first nine months of 2024, our royalties increased $1.5 million or 2.8% compared to the first nine months of 2023.

Current wording

Our most significant source of revenue is royalties received from our franchisees. During the first three months of 2025, our royalties increased $0.5 million or 2.9% compared to the first three months of 2024.

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 nine months of 2024, selling, general and administrative expenses increased $0.3 million, or 1.5% compared to the first nine 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 compensation and benefits, marketing and advertising, professional services, and occupancy. During the first three months of 2025, selling, general and administrative expenses increased $0.6 million, or 9.1% compared to the first three months of 2024.

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 nine months ended September 28, 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 three months ended March 29, 2025:

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 nine months of 2024, we renewed 106 of the 109 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 three months of 2025, we renewed 33 of the 33 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 nine months of 2024 was $1.6 million compared to $3.6 million in the first nine 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 three months of 2025 was $2.3 million compared to $0.8 million in the first three months of 2024. $2.2 million of the $2.3 million of leasing income for the first three months of 2025 was related to the settlement of outstanding customer litigation. The run-off of our leasing portfolio is now substantially complete and we anticipate that leasing income net of leasing expense will be lower during the remaining quarters of 2025 compared to the last three quarters of 2024.

Previous wording

Revenues for the quarter ended September 28, 2024 totaled $21.5 million compared to $22.3 million for the comparable period in 2023.

Current wording

Revenues for the quarter ended March 29, 2025 totaled $21.9 million compared to $20.1 million for the comparable period in 2024.

Previous wording

Royalties increased to $54.6 million for the first nine months of 2024 from $53.1 million for the first nine months of 2023, a 2.8% increase. The increase is primarily from having additional franchise stores in the first nine months of 2024 compared to the same period in 2023.

Current wording

Royalties increased to $17.8 million for the first three months of 2025 from $17.3 million for the first three months of 2024, a 2.9% increase. The increase is primarily due to having additional franchise stores in the first three months of 2025 compared to the same period in 2024.

Previous wording

Franchise fees of $0.5 million for the third quarter of 2024 compared to $0.3 million for the third quarter of 2023.

Current wording

Franchise fees of $0.3 million for the first three months of 2025 were comparable to $0.4 million for the first three months of 2024.

Previous wording

Interest expense was $2.2 million for the first nine months of 2024 compared to $2.3 million for the first nine months of 2023. The decrease is primarily due to lower average borrowings when compared to the same period last year.

Current wording

Leasing income increased to $2.3 million for the first quarter of 2025 compared to $0.8 million for the same period in 2024. The increase is primarily due to the settlement of outstanding customer litigation in the first quarter of 2025.

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 $2.7 million for the first nine months of 2024 compared to $3.6 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 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 first quarter of 2025 compared to $1.1 million in the same period of 2024. The decrease is primarily due to a decrease in 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 $0.7 million for the third quarter of 2024 compared to $0.9 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 third quarter of 2024 and 2023 was 94.3% and 93.7%, 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 first quarter of 2025 compared to $1.0 million in the same period of 2024. 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 2025 and 2024 was 94.4% and 93.6%, respectively.

Previous wording

Selling, general and administrative expenses increased 1.5% to $19.0 million in the first nine months of 2024 compared to $18.7 million in the same period of 2023. The increase was primarily due to an increase in advertising related expenses and outside services.

Current wording

Selling, general and administrative expenses increased 9.1% to $7.4 million in the first quarter of 2025 from $6.8 million in the same period of 2024. The increase was primarily due to a non-recurring expense related to third party software licenses for franchisees.

Previous wording

Interest expense decreased to $0.7 million for the third quarter of 2024 compared to $0.8 million for the third quarter of 2023. The decrease is primarily due to lower average borrowing when compared to the same period last year.

Current wording

Interest expense decreased to $0.6 million for the first quarter of 2025 compared to $0.7 million for the first quarter of 2024. The decrease is primarily due to lower average corporate borrowings when compared to the same period last year.

Previous wording

The provision for income taxes was calculated at an effective rate of 23.9% and 24.4% for the third quarter of 2024 and 2023, respectively. The decrease is primarily due to a decrease in state income taxes.

Current wording

The provision for income taxes was calculated at an effective rate of 24.2% and 24.4% for the first quarter of 2025 and 2024, respectively.

Previous wording

The franchising segment operating income for the first nine months of 2024 increased to $38.8 million from $37.6 million for the first nine 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.

Current wording

The franchising segment’s operating income for the first quarter of 2025 of $11.4 million was down from $11.5 million for the first quarter of 2024. The decrease in segment contribution was primarily due to an increase in selling, general and administrative expenses, partially offset by an increase in royalty revenue.

Previous wording

The franchising segment’s operating income for the third quarter of 2024 increased to $14.8 million from $14.0 million for the third quarter of 2023. The increase in segment contribution was due to increased royalty revenues and a decrease in selling, general and administrative expenses.

Current wording

Other operating segment income for the first quarter of 2025 increased to $2.3 million from $0.7 million for the first quarter of 2024. The increase in segment contribution was due to the settlement of outstanding customer litigation in the Company’s equipment leasing business.

Previous 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.

Current 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.

Previous wording

We ended the third quarter of 2024 with $37.3 million in cash, cash equivalents and restricted cash compared to $40.6 million in cash, cash equivalents and restricted cash at the end of the third quarter of 2023.

Current wording

We ended the first quarter of 2025 with $22.0 million in cash, cash equivalents and restricted cash compared to $22.9 million in cash, cash equivalents and restricted cash at the end of the first quarter of 2024.

Previous wording

Operating activities provided $33.7 million of cash during the first nine months of 2024, compared to $35.2 million provided during the same period last year. The decrease in cash provided by operating activities during the first nine months of 2024 compared to 2023 was primarily due to an increase in inventory, cash paid for income taxes and a decrease in principal collections on lease receivables.

Current wording

Operating activities provided $15.1 million of cash during the first three months of 2025 compared to $13.4 million provided during the first three months of last year. The increase in cash provided by operating activities in the first three months of 2025 compared to 2024 was primarily due to an increase in net income and a decrease in non-cash working capital.

Previous wording

Investing activities used $0.2 million of cash during the first nine months of 2024, compared to $0.3 million used during the same period last year. The 2024 activities consisted of the purchase of property and equipment.

Current wording

Investing activities used $0.1 million of cash during the first three months of 2025. The 2025 activities consisted of the purchase of property and equipment.

Previous wording

Financing activities used $9.6 million of cash during the first nine months of 2024. Our most significant financing activities during the first nine months of 2024 consisted of $9.1 million for the payment of dividends and payments on notes payable of $3.2 million; partially offset by $2.7 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 three months of 2025. Our most significant financing activities during the first three months of 2025 consisted of $3.2 million for the payment of dividends and $2.2 million to repurchase 7,383 shares of our common stock; partially offset by a de minimis amount of proceeds from exercise of stock options. (See Note 8 — “Shareholders’ Equity (Deficit)).

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 governing the facilities). As of September 28, 2024, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement.

Current wording

As of March 29, 2025, our debt facilities include a Line of Credit with CIBC Bank USA, 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 March 29, 2025, 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 September 28, 2024 was $36.0 million). As of September 28, 2024, we had not issued any notes under the Shelf Agreement. Of the $36.0 million of principal outstanding under the Note Agreement, $6.0 million amortizes over the remainder of 2024 through 2027, and $30.0 million matures in 2028.

Current wording

The Shelf Agreement allowed 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 29, 2025 was $30.0 million). As of March 29, 2025, we had not issued any notes under the Shelf Agreement. The Shelf Agreement expired on April 12, 2025. The $30.0 million of principal outstanding under the Note Agreement matures in 2028.

Previous wording

As of the date of this report we believe that the combination of our cash on hand, the cash generated from our business, our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2025.

Current wording

As of the date of this report we believe that the combination of our cash on hand, the cash generated from our business and our Line of Credit will be adequate to fund our planned operations through 2025.