Winmark(WINA) - 2024 Q4 - Annual Report

Franchise Operations - As of December 28, 2024, Winmark operates 1,350 franchises across the United States and Canada, with over 2,800 available territories[16] - The company had a net store growth of 47 new stores in 2024, with a total of 1,350 franchised stores, achieving a renewal rate of 98%[26] - Winmark has signed 79 new franchise agreements, with the majority expected to open in 2025[33] - Over the past three years, the company has successfully renewed over 99% of franchise agreements up for renewal[51] - The company has 118 franchise agreements expiring in 2025, 116 in 2026, and 104 in 2027 across its brands, highlighting the importance of renewals for financial performance[72] Financial Performance - System-wide sales for 2024 reached $1,610.2 million, reflecting a growth from $1,589.0 million in 2023 and $1,534.3 million in 2022[24] - Total revenue for the year ended December 28, 2024, was $81.3 million, a decrease of 2.3% from $83.2 million in 2023[115] - Net income for 2024 was 49.1% of total revenue, compared to 48.3% in 2023, reflecting a slight decrease of 0.6%[114] - The franchising segment's operating income increased by $2.2 million, or 4.5%, to $51.6 million in 2024 from $49.4 million in 2023[126] - Cash flow from operating activities provided $42.2 million in 2024, down from $44.0 million in 2023[129] Royalties and Fees - The total royalties and franchise fees for 2024 amounted to $73.7 million, which is 90.7% of consolidated revenue, up from 86.2% in 2023[26] - Royalties from franchisees increased by $2.0 million, or 2.8%, compared to 2023, indicating a positive trend in franchise performance[107] - Royalties increased to $72.2 million in 2024, up 2.8% from $70.2 million in 2023, primarily due to additional franchise stores[116] Marketing and Advertising - Franchisees are required to spend a minimum of 5% of their gross sales on approved advertising and marketing initiatives[42] - The e-commerce platform developed for Music Go Round, Play It Again Sports, and Style Encore enhances marketing and sales opportunities for franchisees[24] - Franchisees are required to pay an annual marketing fee of $1,500 and spend 5% of gross sales on advertising, with a potential increase to 6%[46] Employee Development - The company employs 89 individuals as of December 28, 2024, with no employees covered by collective bargaining agreements[65] - The company recognizes that employee development is critical, offering competitive salaries and benefits, including a 401(k) plan with matching contributions[66] Competition and Market Risks - The company faces significant competition from larger retailers and online marketplaces, which may impact franchisee sales[52][79] - The company is subject to various federal and state franchise laws and regulations, which may impose additional costs or burdens in the future[85] Financial Condition and Liquidity - The company maintains cash assets that may exceed FDIC insurance limits, posing a risk to liquidity and financial condition[81] - Total contractual obligations as of December 28, 2024, amounted to $73.8 million, with significant payments due in the next 1-3 years[132] - The company ended 2024 with $12.3 million in cash, down from $13.4 million at the end of 2023[129] Leasing Operations - The leasing operations are in a run-off phase, with anticipated decreases in leasing revenues and cash flows[59] - Leasing income net of leasing expense for the fiscal year 2024 was $1.8 million, a significant decrease from $4.4 million in 2023, as the company continues to run off its middle-market leasing portfolio[113] Dividends - In 2024, the company declared and paid quarterly cash dividends totaling $3.50 per share, amounting to $12.3 million, along with a special cash dividend of $7.50 per share totaling $26.5 million[214] - In 2023, the company declared and paid quarterly cash dividends totaling $3.10 per share, amounting to $10.8 million, along with a special cash dividend of $9.40 per share totaling $32.9 million[215] - In 2022, the company declared and paid quarterly cash dividends totaling $2.55 per share, amounting to $8.9 million, along with a special cash dividend of $3.00 per share totaling $10.4 million[215]