Winmark Corporation Announces Second Quarter Results

MINNEAPOLIS--(BUSINESS WIRE)--Winmark Corporation (Nasdaq: WINA) announced today net income for the quarter ended July 1, 2023 of $10,368,800 or $2.85 per share diluted compared to net income of $9,027,200 or $2.54 per share diluted in 2022.

“Our year-to-date results reflect positive franchisee performance and Winmark’s continued emphasis on providing exceptional operational support,” commented Brett D. Heffes, Chair and Chief Executive Officer.

Winmark — the Resale Company®, is a nationally recognized franchising business focused on sustainability and small-business formation. We champion and guide entrepreneurs interested in operating one of our award winning resale franchises: Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. At July 1, 2023, there were 1,303 franchises in operation and over 2,800 available territories. An additional 70 franchises have been awarded but are not open.

This press release contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to future events or the future financial performance of the Company. Such forward-looking statements are only predictions or statements of intention subject to risks and uncertainties and actual events or results could differ materially from those anticipated. Because actual result may differ, shareholders and prospective investors are cautioned not to place undue reliance on such forward-looking statements.

WINMARK CORPORATION CONDENSED BALANCE SHEETS (Unaudited)
	July 1, 2023			December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	32,321,500		$	13,615,600
Restricted cash		55,000			65,000
Receivables, net		1,592,500			1,438,600
Net investment in leases - current		90,000			344,900
Income tax receivable		522,500			558,700
Inventories		446,900			770,600
Prepaid expenses		819,700			1,310,400
Total current assets		35,848,100			18,103,800
Net investment in leases – long-term		—			5,400
Property and equipment, net		1,593,400			1,704,600
Operating lease right of use asset		2,580,400			2,716,000
Intangible assets, net		3,171,300			3,348,300
Goodwill		607,500			607,500
Other assets		461,300			429,700
Deferred income taxes		3,392,000			3,540,400
	$	47,654,000		$	30,455,700
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net	$	4,217,900		$	4,217,900
Accounts payable		1,638,400			2,122,000
Accrued liabilities		4,269,000			2,611,700
Deferred revenue		1,677,700			1,643,900
Total current liabilities		11,803,000			10,595,500
Long-Term Liabilities:
Line of Credit/Term Loan		30,000,000			30,000,000
Notes payable, net		36,957,700			39,066,700
Deferred revenue		7,338,300			6,974,200
Operating lease liabilities		4,013,200			4,287,000
Other liabilities		1,154,900			1,164,400
Total long-term liabilities		79,464,100			81,492,300
Shareholders’ Equity (Deficit):
Common stock, no par, 10,000,000 shares authorized, 3,485,036 and 3,459,673 shares issued and outstanding		5,723,600			1,806,700
Retained earnings (accumulated deficit)		(49,336,700	)		(63,438,800	)
Total shareholders’ equity (deficit)		(43,613,100	)		(61,632,100	)
	$	47,654,000		$	30,455,700

WINMARK CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended						Six Months Ended
	July 1, 2023			June 25, 2022			July 1, 2023			June 25, 2022
Revenue:
Royalties	$	17,105,800		$	15,981,300		$	33,853,500		$	31,371,400
Leasing income		1,019,800			1,212,000			2,656,800			4,083,700
Merchandise sales		1,328,100			1,027,200			2,604,100			1,941,500
Franchise fees		420,700			391,500			798,900			812,100
Other		487,800			458,800			972,500			911,900
Total revenue		20,362,200			19,070,800			40,885,800			39,120,600
Cost of merchandise sold		1,247,800			970,200			2,435,100			1,834,700
Leasing expense		54,300			299,600			370,700			515,600
Provision for credit losses		(700	)		(15,700	)		(5,300	)		(24,600	)
Selling, general and administrative expenses		5,810,000			5,461,600			12,446,100			11,001,600
Income from operations		13,250,800			12,355,100			25,639,200			25,793,300
Interest expense		(779,100	)		(712,000	)		(1,576,700	)		(1,225,100	)
Interest and other income (expense)		292,300			(13,800	)		418,000			(14,700	)
Income before income taxes		12,764,000			11,629,300			24,480,500			24,553,500
Provision for income taxes		(2,395,200	)		(2,602,100	)		(5,169,000	)		(5,673,800	)
Net income	$	10,368,800		$	9,027,200		$	19,311,500		$	18,879,700
Earnings per share - basic	$	2.98		$	2.61		$	5.57		$	5.35
Earnings per share - diluted	$	2.85		$	2.54		$	5.34		$	5.19
Weighted average shares outstanding - basic		3,478,628			3,463,886			3,469,675			3,530,902
Weighted average shares outstanding - diluted		3,634,688			3,559,231			3,614,462			3,637,772

WINMARK CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended
	July 1, 2023			June 25, 2022
OPERATING ACTIVITIES:
Net income	$	19,311,500		$	18,879,700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		385,100			219,400
Provision for credit losses		(5,300	)		(24,600	)
Compensation expense related to stock options		942,000			771,400
Deferred income taxes		148,400			(185,400	)
Operating lease right of use asset amortization		135,600			122,200
Tax benefits on exercised stock options		832,300			348,000
Change in operating assets and liabilities:
Receivables		(153,900	)		(218,400	)
Principal collections on lease receivables		499,800			1,636,100
Income tax receivable/payable		(796,100	)		(549,500	)
Inventories		323,700			(278,200	)
Prepaid expenses		490,700			147,600
Other assets		(31,600	)		(2,200	)
Accounts payable		(483,600	)		(209,700	)
Accrued and other liabilities		1,390,000			2,213,500
Rents received in advance and security deposits		(234,200	)		(472,700	)
Deferred revenue		397,900			(28,200	)
Net cash provided by operating activities		23,152,300			22,369,000
INVESTING ACTIVITIES:
Purchase of property and equipment		(96,900	)		(43,000	)
Reacquired franchise rights		—			(3,540,000	)
Net cash used for investing activities		(96,900	)		(3,583,000	)
FINANCING ACTIVITIES:
Proceeds from borrowings on line of credit/term loan		—			33,700,000
Payments on line of credit/term loan		—			(3,700,000	)
Payments on notes payable		(2,125,000	)		(2,125,000	)
Repurchases of common stock		—			(47,847,500	)
Proceeds from exercises of stock options		2,974,900			2,553,700
Dividends paid		(5,209,400	)		(4,052,600	)
Net cash used for financing activities		(4,359,500	)		(21,471,400	)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		18,695,900			(2,685,400	)
Cash, cash equivalents and restricted cash, beginning of period		13,680,600			11,437,000
Cash, cash equivalents and restricted cash, end of period	$	32,376,500		$	8,751,600
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	1,563,800		$	1,108,100
Cash paid for income taxes	$	4,984,600		$	6,060,800
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Balance Sheets to the total of the same amounts shown above:
	Six Months Ended
	July 1, 2023			June 25, 2022
Cash and cash equivalents	$	32,321,500		$	8,696,600
Restricted cash		55,000			55,000
Total cash, cash equivalents and restricted cash	$	32,376,500		$	8,751,600