WINMARK CORP

Previous wording

Winmark – the Resale Company is focused on sustainability and small business formation. As of June 27, 2026, we had 1,389 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 September 26, 2026, we had 1,398 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 six months of 2026, our royalties increased $2.9 million or 8.1% compared to the first six months of 2025.

Current wording

Our most significant source of franchising revenue is royalties received from our franchisees. During the first nine months of 2026, our royalties increased $3.7 million or 6.5% compared to the first nine months of 2025.

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 compensation and benefits, marketing and advertising, professional services, and occupancy. During the first six months of 2026, selling, general and administrative expenses increased $1.4 million, or 9.6% compared to the first six months of 2025.

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 nine months of 2026, selling, general and administrative expenses increased $1.6 million, or 7.8% compared to the first nine months of 2025.

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 six months ended June 27, 2026:

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 nine months ended September 26, 2026:

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 six months of 2026, we renewed 50 of the 50 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 nine months of 2026, we renewed 77 of the 77 franchise agreements available for renewal.

Previous wording

Revenues for the quarter ended June 27, 2026 totaled $22.0 million compared to $20.4 million for the comparable period in 2025.

Current wording

Revenues for the quarter ended September 26, 2026 totaled $27.9 million compared to $22.6 million for the comparable period in 2025.

Previous wording

Royalties increased to $20.1 million for the second quarter of 2026 from $18.7 million for the second quarter of 2025, a 7.8% increase. The increase is primarily from higher franchise retail sales and, to a lesser extent, from having additional franchise stores in the second quarter of 2026 compared to the same period in 2025.

Current wording

Royalties increased to $21.7 million for the third quarter of 2026 from $20.9 million for the third quarter of 2025, a 3.8% increase. The increase is primarily from higher franchise retail sales, and to a lesser extent, from having additional franchise stores in the third quarter of 2026 compared to the same period in 2025.

Previous wording

Franchise fees of $0.4 million for the second quarter of 2026 were comparable to $0.3 million for the second quarter of 2025.

Current wording

Franchise fees were $0.3 million for the third quarter of 2026 compared to $0.4 million for the third quarter of 2025.

Previous wording

We had no leasing income for the second quarter of 2026 compared to $46,600 for the same period in 2025. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

Current wording

We had no leasing income for the first nine months of 2026 compared to $46,600 for the same period in 2025. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

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 of $0.9 million for the second quarter of 2026 were comparable to $0.8 million in the same period of 2025.

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 increased to $1.0 million for the third quarter of 2026 from $0.7 million in the same period of 2025. The increase is primarily due to an increase 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 of $0.8 million for the second quarter of 2026 was comparable to $0.8 million in the same period of 2025. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2026 and 2025 was 95.3% and 95.4%, 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 increased to $0.9 million for the third quarter of 2026 from $0.7 million in the same period of 2025. The increase is due to an increase in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the third quarter of 2026 and 2025 was 91.8% and 95.6%, respectively.

Previous wording

Selling, general and administrative expenses increased 13.9% to $7.5 million in the second quarter of 2026 compared to $6.6 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing, the timing of advertising production expense, and outside services.

Current wording

Selling, general and administrative expenses increased 4.1% to $7.3 million in the third quarter of 2026 compared to $7.0 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing.

Previous wording

Interest expense of $0.6 million for the second quarter of 2026 was comparable to $0.6 million for the second quarter of 2025.

Current wording

Interest expense of $0.6 million for the third quarter of 2026 was comparable to $0.6 million for the third quarter of 2025.

Previous wording

The provision for income taxes was calculated at an effective rate of 21.6% and 20.4% for the first six months of 2026 and 2025, respectively. The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options during the first six months of 2026 compared to the first six months of 2025.

Current wording

The provision for income taxes was calculated at an effective rate of 23.3% and 23.8% for the third quarter of 2026 and 2025, respectively. The decrease is primarily due to more tax benefits on the exercise of non-qualified stock options during the third quarter of 2026 compared to the third quarter of 2025.

Previous wording

Revenues for the first six months of 2026 totaled $42.8 million compared to $42.3 million for the comparable period in 2025.

Current wording

Revenues for the first nine months of 2026 totaled $70.7 million compared to $65.0 million for the comparable period in 2025.

Previous wording

Royalties increased to $39.4 million for the first six months of 2026 from $36.4 million for the first six months of 2025, an 8.1% increase. The increase is primarily from higher franchise retail sales, and, to a lesser extent, from having additional franchise stores in the first six months of 2026 compared to the same period in 2025.

Current wording

Royalties increased to $61.1 million for the first nine months of 2026 from $57.3 million for the first nine months of 2025, a 6.5% increase. The increase is primarily from higher franchise retail sales, and to a lesser extent, from having additional franchise stores in the first nine months of 2026 compared to the same period in 2025.

Previous wording

We had no leasing income for the first six months of 2026 compared to $2.4 million for the same period in 2025. Leasing income in the first six months of 2025 reflected the settlement of customer litigation. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

Current wording

We had no leasing income for the first nine months of 2026 compared to $2.4 million for the same period in 2025. Leasing income in the first nine months of 2025 reflected the settlement of customer litigation. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.

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 $1.5 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. The decrease is primarily due to a decrease in 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 increased to $2.5 million for the first nine months of 2026 compared to $2.4 million in the same period of 2025. The increase is primarily due to an increase 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 $1.4 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. 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 2026 and 2025 was 95.0% and 94.8%, 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 increased to $2.4 million for the first nine months of 2026 compared to $2.3 million in the same period of 2025. The increase is due to an increase in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first nine months of 2026 and 2025 was 93.7% and 95.1%, respectively.

Previous wording

Selling, general and administrative expenses increased 9.6% to $15.4 million in the first six months of 2026 compared to $14.0 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing.

Current wording

Selling, general and administrative expenses increased 7.8% to $22.7 million in the first nine months of 2026 compared to $21.1 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing.

Previous wording

The provision for income taxes was calculated at an effective rate of 21.2% and 16.6% for the second quarter of 2026 and 2025, respectively. The increase is primarily due to less tax benefits on the exercise of non-qualified stock options during the second quarter of 2026 compared to the second quarter of 2025.

Current wording

The provision for income taxes was calculated at an effective rate of 22.2% and 21.7% for the first nine months of 2026 and 2025, respectively. The increase is primarily due to less tax benefits on the exercise of non-qualified stock options during the third quarter of 2026 compared to the third quarter of 2025.

Previous wording

The franchising segment’s operating income for the second quarter of 2026 increased to $13.6 million from $13.0 million for the second quarter of 2025. 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 third quarter of 2026 increased to $15.8 million from $14.9 million for the third quarter of 2025. The increase in segment contribution was due to increased royalty revenue and software revenue, partially offset by an increase in selling, general, and administrative expenses.

Previous wording

The franchising segment operating income for the first six months of 2026 increased to $26.0 million from $24.4 million for the first six months of 2025. 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 operating income for the first nine months of 2026 increased to $41.8 million from $41.6 million for the first nine months of 2025. The increase in segment contribution was due to increased royalty revenue and software revenue, partially offset by an increase in selling, general and administrative expenses.

Previous wording

The other operating segment income for the first six months of 2026 was $0.0 million compared to $2.3 million for the first six months of 2025. The segment contribution in the first six months of 2025 reflected the settlement of customer litigation.

Current wording

The Company had no other operating segment during 2026. The former other operating segment generated $2.3 million of operating income in the first nine months of 2025. The segment contribution in the first nine months of 2025 reflected the settlement of customer litigation.

Previous wording

We ended the second quarter of 2026 with $26.0 million in cash, cash equivalents and restricted cash compared to $28.9 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2025.

Current wording

We ended the third quarter of 2026 with $28.1 million in cash, cash equivalents and restricted cash compared to $39.9 million in cash, cash equivalents and restricted cash at the end of the third quarter of 2025.

Previous wording

Operating activities provided $22.6 million of cash during the first six months of 2026, compared to $24.1 million provided during the same period last year. The decrease in cash provided by operating activities during the first six months of 2026 compared to 2025 was primarily due to a decrease in net income.

Current wording

Operating activities provided $35.5 million of cash during the first nine months of 2026, compared to $36.4 million provided during the same period last year. The decrease in cash provided by operating activities during the first nine months of 2026 compared to 2025 was primarily due to an increase in non-cash operating working capital.

Previous wording

Investing activities used $2.3 million of cash during the first six months of 2026, compared to $0.1 million used during the same period last year. The 2026 activities primarily consisted of software development costs related to the modernization of our point-of-sale system.

Current wording

Investing activities used $2.5 million of cash during the first nine months of 2026, compared to $0.2 million used during the same period last year. The 2026 activities primarily consisted of software development costs related to the modernization of our point-of-sale system.

Previous wording

Financing activities used $4.8 million of cash during the first six months of 2026. Our most significant financing activities during the first six months of 2026 consisted of $7.1 million for the payment of dividends; partially offset by $2.3 million of proceeds from exercise of stock options. See Note 8 — “Shareholders’ Equity Deficit.”

Current wording

Financing activities used $15.3 million of cash during the first nine months of 2026. Cash used in financing activities during the first nine months of 2026 consisted of $10.8 million for the payment of dividends and $8.1 million for the repurchase of common stock; partially offset by $3.5 million of proceeds from exercise of stock options. See Note 9 — “Shareholders’ Equity Deficit.”

Previous wording

We expect to generate the cash necessary to pay our expenses and to pay the principal and interest on our outstanding debt from cash flows provided by operating activities and by opportunistically using other means to repay or refinance our obligations as we determine appropriate. Our ability to pay our expenses and meet our debt service obligations depends on our future performance, which may be affected by financial, business, economic, and other factors including the risk factors described under Item 1A of our Form 10-K for the fiscal year ended December 27, 2025 and under Item 1A below. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all. Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital.

Current wording

the risk factors described under Item 1A of our Form 10-K for the fiscal year ended December 27, 2025 and under Item 1A below. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all. Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital.