Winmark Corporation (WINA) is a remarkable company that has been at the forefront of the sustainability movement for over 35 years. As a nationally recognized franchisor, Winmark has championed the concept of the circular economy, offering consumers a unique and eco-friendly shopping experience through its portfolio of resale brands.
Company History and Growth
Founded in 1988, Winmark has steadily grown its presence in the United States and Canada, operating a network of 1,350 franchised stores as of December 28, 2024. The company's five distinct retail concepts - Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore, and Music Go Round - have carved out a significant niche in their respective markets, catering to a diverse customer base with a focus on providing high-quality used merchandise at substantial savings.
Winmark's journey began with the franchising of Play It Again Sports in 1988, followed by Once Upon A Child in 1993, Music Go Round in 1994, Plato's Closet in 1999, and Style Encore in 2013. This strategic expansion allowed the company to offer a diverse range of retail concepts, each catering to different consumer needs while maintaining a focus on sustainability and small business formation.
In 2004, Winmark expanded its operations by launching a middle-market leasing business through its wholly-owned subsidiary, Winmark Capital Corporation. However, in May 2021, the company made the decision to no longer solicit new leasing customers and pursue an orderly run-off of this portfolio, marking a significant shift in its business strategy.
Shareholder Value and Growth Potential
Throughout its history, Winmark has consistently demonstrated its commitment to shareholder value. The company has regularly paid quarterly cash dividends to shareholders and has engaged in repurchasing its common stock over the years. As of December 2024, Winmark had over 2,800 available territories for potential franchise expansion, highlighting the significant growth potential that still exists for the company.
Financials
Winmark's financial performance has been consistent and impressive, reflecting the strength of its business model. In the fiscal year ended December 28, 2024, the company reported total revenue of $81.29 million, down slightly from $83.24 million in the previous year. Net income for the year stood at $39.95 million, or $10.89 per diluted share, compared to $40.18 million, or $11.04 per diluted share, in 2023. The company's decision in May 2021 to run-off its leasing portfolio impacted the overall financial results, as leasing income and expenses decreased during the period.
Despite the challenges posed by the leasing portfolio run-off, Winmark's core franchising business remained resilient. Royalties, the company's primary revenue driver, increased by 2.8% to $72.20 million in 2024, up from $70.23 million in 2023, primarily due to an increase in the number of franchise stores in operation. The company's focus on supporting its franchisees and fostering their growth has been instrumental in maintaining this positive momentum.
For the most recent quarter ended December 28, 2024, Winmark reported revenue of $19.55 million, representing a year-over-year increase of 1.9%. Net income for the quarter stood at $9.58 million.
Winmark operates through two main segments: Franchising and Leasing. The Franchising segment, which is the core of Winmark's business, generated $79.48 million in revenue for fiscal year 2024, up from $78.48 million in 2023. This segment's operating income increased by 4.5% to $51.59 million in 2024, driven by higher royalty revenues. Royalties accounted for $72.20 million or 88.8% of the company's total revenue in 2024, while franchise fees contributed an additional $1.55 million.
The Leasing segment, which is being phased out, reported leasing income, net of leasing expense, of $1.80 million in fiscal 2024, down from $4.40 million in 2023. The net investment in leases decreased from $0.10 million at the end of 2023 to $0.00 million at the end of 2024 as the portfolio continues to run off.
Geographically, Winmark primarily operates in the United States, with approximately $7.3 million in revenue from Canadian franchisees in 2024, up from $6.8 million in 2023 and $6.4 million in 2022.
Sustainability and Circular Economy
Winmark's commitment to sustainability is woven into the fabric of its business model. The company estimates that, since 2010, its franchised stores have extended the lives of over 1.9 billion items of clothing, toys, sporting goods, and musical instruments, diverting these items from landfills and giving them a new lease on life. This impressive statistic underscores Winmark's role as a pioneer in the circular economy, offering consumers a responsible and environmentally-conscious shopping alternative.
Franchise Performance
The company's franchise renewal rates have been consistently high, with 98% of franchise agreements up for renewal in 2024 being renewed. This speaks to the strong loyalty and satisfaction of Winmark's franchisees, who have embraced the company's vision and are committed to its long-term success.
The total number of franchised stores increased from 1,320 at the end of 2023 to 1,350 at the end of 2024, demonstrating steady growth in the franchise network. Management views the renewal of existing franchise agreements as an important indicator of the health of the Franchising business and the preservation of future royalties.
Future Outlook
Looking ahead, Winmark remains focused on expanding its reach and nurturing its franchise network. The company has 79 signed franchise agreements as of December 28, 2024, the majority of which are expected to open in 2025. This pipeline of new stores, combined with the continued performance of its existing franchises, positions Winmark for continued growth and success.
Winmark continues to enhance its franchise model and provide franchisees with technology, tools, and training to profitably expand their operations and evolve towards being multi-channel retailers. The company's ability to grow its operating income is dependent on its ability to effectively support its franchise partners, open new franchises, and control selling, general, and administrative expenses.
Liquidity
Winmark's robust financial position, with a strong balance sheet and healthy cash flow, provides the company with the flexibility to navigate any future challenges. As of December 28, 2024, Winmark had $12.19 million in cash and cash equivalents, and generated $42.16 million in operating cash flow during the year. The company's annual free cash flow for the fiscal year 2024 stood at $41.96 million.
Winmark's debt-to-equity ratio was -1.23 as of December 28, 2024. The company has a line of credit with CIBC Bank USA that provides for up to $20 million in revolving loans and $30 million in delayed draw term loans, of which $30 million was outstanding as of December 28, 2024.
The company's current ratio was 3.02 and quick ratio was 2.94 as of December 28, 2024, indicating a strong ability to meet short-term obligations.
Dividend History
The company's commitment to shareholder value is evident in its dividend history. In 2024, Winmark paid a quarterly cash dividend of $0.90 per share and a special dividend of $7.50 per share, totaling $38.87 million in dividends for the year.
Business Overview A Storied Brand with a Refocused Strategy
Winmark Corporation is a nationally recognized franchisor focused on sustainability and small business formation. The company franchises five retail store concepts that buy, sell, trade, and consign merchandise: Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore, and Music Go Round.
Plato's Closet franchisees buy and sell gently used clothing and accessories geared towards the teenage and young adult market. Once Upon A Child franchisees buy and sell used and new children's clothing, toys, furniture, and accessories. Play It Again Sports franchisees buy, sell, and trade used and new sporting goods, equipment, and accessories for a variety of athletic activities. Style Encore franchisees buy and sell gently used women's and men's apparel, shoes, and accessories. Music Go Round franchisees buy, sell, and trade used and new musical instruments, speakers, amplifiers, and related accessories.
Winmark's mission is to provide "Resale for Everyone" by offering consumers a mix of high-quality used and new merchandise at substantial savings compared to purchasing new. This approach not only provides value to consumers but also contributes significantly to sustainability efforts by extending the lifecycle of products.
Conclusion
Despite the inherent risks associated with any business, Winmark's diversified portfolio of franchised retail concepts, focus on sustainability, and strong financial position make it a compelling investment proposition. As the world increasingly embraces the principles of the circular economy, Winmark is poised to continue its role as a trailblazer, guiding entrepreneurs and consumers towards a more sustainable future. With its robust franchise model, steady growth in store numbers, and consistent financial performance, Winmark Corporation stands as a unique player in the retail landscape, well-positioned to capitalize on the growing trend of conscious consumerism and resale markets.