Winmark(WINA) - 2021 Q4 - Annual Report

Financial Performance - System-wide sales for 2021 reached $1,406.6 million, a 30.8% increase from $1,075.0 million in 2020[27] - Total revenue for the fiscal year ended December 25, 2021, was $78.2 million, an increase of 18.4% from $66.1 million in 2020[116] - Net income for the fiscal year ended December 25, 2021, was $39,919,900, up 33.8% from $29,823,300 in the prior year[165] - Earnings per share (EPS) - basic increased to $10.87 for the fiscal year ended December 25, 2021, compared to $8.02 in the previous year, reflecting a 35.5% growth[165] - Cash provided by operating activities was $48,346,200 for the fiscal year ended December 25, 2021, compared to $43,221,300 in the previous year, indicating an increase of 7.8%[170] - The franchising segment's operating income rose by $12.9 million, or 40.6%, to $44.8 million in 2021 from $31.9 million in 2020[130] - Royalties increased to $60.8 million in 2021, up 31.3% from $46.3 million in 2020, primarily due to higher franchisee retail sales[117] Franchise Operations - As of December 25, 2021, there were 1,271 total franchised stores, with a renewal rate of 99%[30] - The company had 46 signed franchise agreements as of December 25, 2021, with most expected to open in 2022[35] - The company renewed 99% of franchise agreements up for renewal in 2021, maintaining a renewal rate between 98% and 99% over the last three years[111] - A total of 144 franchise agreements will expire in 2022, with 183 in 2023 and 151 in 2024 across five brands, highlighting the importance of renewals for financial performance[79] - Franchisees are required to spend a minimum of 5% of their gross sales on approved advertising and marketing[45] - The franchisee training program includes business plan development and operational support, ensuring franchisee success[37][38] Sustainability and E-commerce - The company purchased over 165 million items across its five resale brands in 2021, promoting sustainability and reducing waste[32] - The e-commerce platform allows franchisees to market and sell inventory online, enhancing brand awareness and driving local sales[29] - The company is focused on sustainability and small business formation, which is designed to generate consistent, recurring revenue[108] - The company may face challenges in capitalizing on the increasing demand in the e-commerce channel, which could affect sales growth[105] Competition and Market Environment - The company operates in a highly competitive retail environment, facing competition from both new merchandise retailers and resale stores[85] - The franchise system faces competition from established retailers and online marketplaces, which may impact sales[55] - The company is dependent on new franchisees for revenue growth, with macro-economic conditions potentially affecting franchise openings[80] Financial Risks and Liabilities - There is a risk of not being able to collect accounts receivable from franchisees, which could adversely impact financial results[84] - The company is subject to credit risk in its lease portfolio, and inadequate allowance for credit losses could reduce operating income[86] - The company has existing indebtedness and relies on cash flows from operations to meet debt service obligations[89] - The company expects to generate sufficient cash flows from operations to meet its debt service obligations[148] Employee and Diversity - Approximately 50% of the company's employees identify as female, reflecting a commitment to diversity and inclusion[73] Seasonal Trends - The company has experienced higher sales volumes during spring and back-to-school seasons for certain brands, indicating seasonal trends[69] Leasing Business - Winmark Capital Corporation will no longer solicit new leasing customers and will pursue an orderly run-off of its leasing portfolio[19] - The leasing business has been phased out, with a decision made in May 2021 to no longer solicit new leasing customers, leading to anticipated revenue declines[63] - The Company decided to no longer solicit new leasing customers in its middle-market leasing business and will pursue an orderly run-off of this leasing portfolio as of May 2021[213] Cash and Investments - The company ended 2021 with $11.4 million in cash, cash equivalents, and restricted cash, up from $6.7 million at the end of 2020[132] - The company had cash and cash equivalents of $11,407,000 as of December 25, 2021, an increase from $6,659,000 on December 26, 2020[163] - The company had principal collections on lease receivables of $9,915,400 for the fiscal year ended December 25, 2021, down from $14,829,200 in the previous year[170] Tax and Compliance - The effective tax rate decreased to 19.9% in 2021 from 22.6% in 2020, primarily due to higher tax benefits on stock options[126] - The company was in compliance with all financial covenants under the Line of Credit and Note Agreement as of December 25, 2021[147]