Business Overview

Winmark Corporation is the parent company behind the popular retail brands Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore, and Music Go Round. The company has demonstrated remarkable financial performance in recent years. An analysis of the company's latest financial statements and industry trends reveals Winmark's ability to consistently deliver strong results.

Financials

Financial Highlights

Winmark's annual financial performance has been impressive. In the fiscal year 2023, the company reported annual revenue of $83,243,500, a testament to the strength of its franchise model and the growing demand for its retail concepts. The company's net income for the same period reached $40,178,100, showcasing its ability to translate revenue into profitability.

The company's cash flow generation is equally noteworthy. Winmark's annual operating cash flow for the fiscal year 2023 stood at $43,994,300, while its annual free cash flow reached $43,610,400. These robust cash flow figures underscore the company's financial flexibility and its capacity to invest in growth initiatives and return capital to shareholders.

Quarterly Performance

Winmark's quarterly financial performance has also been commendable. In the second quarter of 2024, the company reported revenue of $20,120,500, a slight decrease from the $20,362,200 reported in the same period of the previous year. However, the company's net income for the quarter remained strong at $10,431,400, compared to $10,368,800 in the second quarter of 2023.

The company's franchising segment, which accounts for the majority of its revenue, continued to perform well, with royalties increasing to $17,774,500 in the second quarter of 2024 from $17,105,800 in the same period of the previous year. This growth was primarily driven by an increase in the number of franchise stores and higher franchisee retail sales.

Leasing Income and Merchandise Sales

Winmark's leasing income, which is generated from its middle-market equipment leasing business, decreased to $524,400 in the second quarter of 2024 from $1,019,800 in the same period of 2023. This decline is in line with the company's decision to no longer solicit new leasing customers and pursue an orderly run-off of its leasing portfolio.

Merchandise sales, which include the sale of products to franchisees through the company's Computer Support Center and the Play It Again Sports buying group, decreased to $925,500 in the second quarter of 2024 from $1,328,100 in the same period of the previous year. This decrease was primarily due to a reduction in buying group and technology purchases by the company's franchisees.

Operational Efficiency and Profitability

Winmark's operational efficiency is reflected in its strong profitability metrics. The company's gross profit margin remained high at 95% in the second quarter of 2024, while its operating profit margin stood at 64%. These figures demonstrate Winmark's ability to effectively manage its costs and maintain a lean, efficient business model.

The company's net profit margin for the second quarter of 2024 was 49%, indicating its capacity to translate revenue into bottom-line earnings. Winmark's return on assets (ROA) and return on equity (ROE) for the fiscal year 2023 were 0.90 and 0.85, respectively, further highlighting its profitability and capital efficiency.

Franchise Growth and Renewal

Winmark's franchise business is a key driver of its success. As of June 29, 2024, the company had 1,336 franchises operating under its various retail concepts, up from 1,319 at the end of 2023. This net store growth demonstrates the continued demand for Winmark's franchise offerings and the company's ability to attract new franchisees.

Franchise renewal is another important metric for Winmark. During the first six months of 2024, the company renewed 71 out of 72 franchise agreements that were up for renewal, reflecting the strong loyalty and satisfaction of its existing franchisees.

Liquidity

Winmark's balance sheet remains strong, with a healthy liquidity position. As of June 29, 2024, the company had $29,397,400 in cash and cash equivalents, compared to $13,361,500 at the end of 2023. This robust cash position provides Winmark with the financial flexibility to pursue growth initiatives and navigate potential economic uncertainties.

The company's debt management is also commendable. As of June 29, 2024, Winmark had $30,000,000 in outstanding borrowings under its line of credit and $37,100,000 in notes payable, with a weighted average interest rate of approximately 4.2%. The company's strong cash flow generation and prudent debt management have enabled it to maintain a healthy balance sheet and a manageable debt burden.

Risks and Challenges

While Winmark's financial performance has been impressive, the company is not without its risks. The highly competitive nature of the retail industry, changes in consumer preferences, and the potential impact of economic downturns on consumer spending could pose challenges to the company's growth and profitability.

Outlook

Winmark's management team has demonstrated its ability to navigate these challenges. The company's focus on value-oriented retail concepts, its diversified franchise portfolio, and its strong brand recognition provide a solid foundation for continued success.

Looking ahead, Winmark's management has not provided any specific financial guidance for the remainder of 2024 or the upcoming fiscal year. However, the company's consistent performance, robust cash flow generation, and disciplined approach to growth and capital allocation suggest that Winmark is well-positioned to continue delivering value to its shareholders.

Conclusion

Winmark Corporation's financial performance and operational execution have been truly impressive. The company's strong franchising segment, efficient cost management, and prudent capital allocation have enabled it to consistently generate robust revenue, net income, and cash flow. While the company faces industry-specific risks, Winmark's management team has demonstrated its ability to navigate these challenges and capitalize on the growing demand for its retail concepts.

An analysis of Winmark's combination of financial strength, operational excellence, and growth potential suggests it is a compelling investment opportunity for those seeking exposure to the resilient resale retail industry. The company's track record of delivering shareholder value and its promising outlook suggest that Winmark is well-positioned to continue its impressive performance in the years to come.