Winmark(US:WINA)2021-03-09 18:40Financial Performance - System-wide sales for 2020 were $1,075.0 million, a decrease of 10.6% from $1,203.3 million in 2019[29]. - Total revenue for the fiscal year ended December 26, 2020, was $66.1 million, a decrease of 9.9% compared to $73.3 million in 2019[135]. - Net income for the fiscal year was $29.8 million, compared to $32.1 million in 2019, reflecting a decrease of 7.2%[135]. - Total revenue declined to $66.1 million in 2020 from $73.3 million in 2019, representing a decrease of approximately 9.9%[148]. - Franchising segment revenue decreased to $51.6 million in 2020 from $57.2 million in 2019, a decline of 9.3%[148]. - Leasing segment revenue decreased to $14.5 million in 2020 from $16.1 million in 2019, a decrease of 9.8%[148]. - Royalties decreased to $46.3 million in 2020 from $51.4 million in 2019, a 10.0% decrease due to lower franchisee retail sales attributed to COVID-19[136]. - The company's net income for the fiscal year ended December 26, 2020, was $29,823,300, compared to $32,149,300 in 2019, reflecting a decrease of 10.3%[184]. - Cash flow from operating activities provided $43.2 million in 2020, down from $50.6 million in 2019[153]. - Cash and cash equivalents decreased to $6.7 million at the end of 2020 from $25.2 million at the end of 2019[152]. Franchise Operations - As of December 26, 2020, the company had 1,264 franchised stores, with 26 opened and 18 closed during the fiscal year[31]. - The franchise renewal rate was 99% for the fiscal year ended December 26, 2020, indicating strong franchisee satisfaction[31]. - The company has 30 signed retail franchise agreements expected to open in 2021, indicating future growth potential[37]. - The initial franchise fee for a store in the U.S. is $25,000, while in Canada it is $32,500 CAD[50]. - Franchisees are required to pay weekly continuing fees (royalties) ranging from 4% to 5% of gross sales[50]. - Franchisees must spend 5% of gross sales on advertising, with the option to increase this to 6%[51]. - The company renewed 99% of franchise agreements up for renewal in the past three years[56]. - The Canadian operations generated approximately $4.0 million in franchising revenues for 2020, contributing to overall revenue[23]. Leasing Business - The company targets organizations with annual revenues between $30 million and several billion dollars for its middle-market equipment leasing business[21]. - Equipment purchases for lease customers decreased from $25.4 million in 2017 to $4.1 million in 2020, and the leasing portfolio shrank from $41.3 million to $13.3 million over the same period[64]. - Operating income from the leasing segment fell from $9.3 million in 2017 to $8.3 million in 2020[64]. - Leasing income net of leasing expense was $11.9 million in 2020, down from $14.0 million in 2019[128]. - The leasing portfolio was valued at $13.3 million as of December 26, 2020, down from $25.3 million in 2019[129]. - The leasing portfolio has materially declined in recent years, and failure to add new leasing customers could further impact leasing income[102]. Competition and Market Risks - The company faces significant competition in the retail franchising and equipment leasing markets from larger firms with greater resources[57][75]. - The company operates in highly competitive industries, facing competition from retailers with significantly greater financial resources[95]. - Concerns over the economic effects of COVID-19 have caused extreme volatility in financial markets, potentially impacting the market value of the company's common stock[88]. - The company is dependent on franchise renewals, with 116, 143, and 184 franchise agreements expiring in 2021, 2022, and 2023 respectively, which could materially impact financial performance if not renewed[89]. Financial Position and Cash Flow - The company had no debt outstanding under its $25.0 million line of credit as of December 26, 2020, indicating a strong liquidity position[177]. - The company's total liabilities decreased to $42,721,900 as of December 26, 2020, from $49,393,900 in 2019, a reduction of 13.4%[182]. - Cash and cash equivalents decreased significantly to $6,659,000 as of December 26, 2020, from $25,130,300 as of December 28, 2019[182]. - Principal collections on lease receivables decreased to $14,829,200 from $19,421,400, reflecting a decline of 23.3%[1]. - Net cash used for financing activities increased to $(57,558,500) from $(18,864,500), indicating a significant rise in cash outflows[1]. Operational Challenges - The ability to collect accounts receivable from franchisees is critical; a significant decline could adversely impact results of operations and financial condition[94]. - The company may incur additional investments outside of core businesses, which could have a material adverse impact on financial results if unsuccessful[91]. - The company is subject to various federal and state franchise laws and regulations, which could impose costs or burdens that may adversely affect operations[108]. - The company has implemented security systems to protect confidential information, but remains vulnerable to potential breaches that could have material adverse effects[111]. Advertising and Marketing - Franchisees are required to spend a minimum of 5% of their gross sales on approved advertising and marketing[47]. - Advertising costs for fiscal year 2020 were $273,900, a decrease of 32.0% compared to $402,700 in 2019[1].