Winmark(WINA) - 2022 Q4 - Annual Report

Franchise Operations - As of December 31, 2022, Winmark operated 1,295 franchises across the United States and Canada, with over 2,800 available territories[20] - The franchisee renewal rate for 2022 was 100% across all brands, with 144 renewals completed[33] - Winmark has signed 57 new franchise agreements, with the majority expected to open in 2023[40] - The company renewed 99% of franchise agreements up for renewal in the past three years, indicating strong franchisee retention[59] - A total of 180 franchise agreements will expire in 2023 across five brands, highlighting the importance of renewals for financial performance[83] Financial Performance - Total revenue for the year ended December 31, 2022, was $81.4 million, an increase of 4.1% compared to $78.2 million in 2021[119] - Net income for the fiscal year ended December 31, 2022, was $39,424,900, compared to $39,919,900 in the prior year, reflecting a slight decrease of 1.2%[165] - Earnings per share (EPS) for basic shares was $11.30 for the fiscal year ended December 31, 2022, up from $10.87 in the previous year, representing an increase of 3.9%[165] - The company reported royalties of $67,148,100 for the fiscal year ended December 31, 2022, an increase of 10.5% from $60,779,300 in the previous year[165] - The franchising segment's operating income rose by $4.2 million, or 9.3%, to $49.0 million in 2022 from $44.8 million in 2021[133] Revenue Sources - System-wide sales for 2022 reached $1.534 billion, representing a growth of approximately 9.1% from $1.406 billion in 2021[30] - The total royalties and franchise fees for 2022 amounted to $68.7 million, which is 84.4% of consolidated revenue, up from 79.6% in 2021[33] - Winmark's Canadian franchise revenues were approximately $6.4 million, an increase from $4.9 million in 2021[23] - Total revenue increased to $81.4 million in 2022 from $78.2 million in 2021, with franchising revenue contributing $74.5 million[131] Expenses and Liabilities - Selling, general and administrative expenses rose by $0.9 million, or 3.9%, in 2022 compared to the previous year[110] - Interest expense increased by 100.5% in 2022 compared to the previous year, reflecting higher borrowing costs[118] - Total liabilities increased to $92,087,800 as of December 31, 2022, from $65,982,400 in the previous year, reflecting a significant rise of 39.8%[163] - The company’s total long-term liabilities increased to $81,492,300 as of December 31, 2022, from $56,004,800 in the previous year, representing an increase of 45.7%[163] Cash Flow and Assets - Cash flow from operating activities provided $43.8 million in 2022, down from $48.3 million in 2021, primarily due to decreased principal collections on lease receivables[136] - As of December 31, 2022, the company had $13.7 million in cash, cash equivalents, and restricted cash, compared to $11.4 million at the end of 2021[136] - Total current assets rose to $18,103,800 as of December 31, 2022, compared to $17,432,300 in the previous year, indicating an increase of 3.8%[162] Market and Competition - The company faces competition from various retailers, including large chains and online marketplaces, impacting franchisee sales[60] - Franchisees depend on a reliable supply of used merchandise, which may be affected by public demand and regulatory requirements[87] Operational Changes - The company has ceased operations in its small-ticket financing business, selling the remaining portfolio for approximately $0.7 million[67] - The middle-market leasing business is in a run-off phase, with expected declines in leasing revenues and cash flows[68] Diversity and Inclusion - Approximately 50% of the company's employees identify as female, reflecting a commitment to diversity and inclusion[77] Advertising and Marketing - The company emphasizes a minimum advertising spend of 5% of gross sales for franchisees to promote their stores[50] - Franchisees must spend 5% of gross sales on advertising, with the potential to increase this to 6%[55] - Advertising costs rose to $491,900 in fiscal year 2022, up from $348,200 in fiscal year 2021, marking an increase of 41.1%[193]