Winmark Corporation (WINA) Bundle
Understanding Winmark Corporation (WINA) Revenue Streams
Understanding Winmark Corporation’s Revenue Streams
Winmark Corporation generates its revenue primarily through franchising, leasing income, and merchandise sales. The following sections detail the breakdown of these revenue sources, historical growth rates, and contributions from various segments.
Breakdown of Primary Revenue Sources
| Revenue Source | Q3 2024 Revenue | Q3 2023 Revenue | 9M 2024 Revenue | 9M 2023 Revenue |
|---|---|---|---|---|
| Royalties | $19.5 million | $19.2 million | $54.6 million | $53.1 million |
| Franchise Fees | $0.5 million | $0.3 million | $1.2 million | $1.1 million |
| Leasing Income | $0.3 million | $1.3 million | $1.7 million | $3.9 million |
| Merchandise Sales | $0.7 million | $1.0 million | $2.7 million | $3.6 million |
| Other Revenue | $0.5 million | $0.5 million | $1.6 million | $1.5 million |
| Total Revenue | $21.5 million | $22.3 million | $61.7 million | $63.2 million |
Year-over-Year Revenue Growth Rate
For the third quarter of 2024, total revenue decreased by 3.6% compared to the third quarter of 2023. Year-to-date, revenue for the first nine months of 2024 reflects a decrease of 2.4% from the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
The franchising segment remains the most significant contributor to overall revenue, accounting for approximately 90.5% of total revenue in the first nine months of 2024. The breakdown is as follows:
- Franchising Segment: $60.1 million (97.4% of total revenue)
- Other Operating Segment: $1.6 million (2.6% of total revenue)
Analysis of Significant Changes in Revenue Streams
Key changes in revenue streams include:
- Royalties saw a modest increase of 2.8% in the first nine months of 2024 compared to the previous year, driven by a rise in the number of franchise stores.
- Leasing income experienced a significant decline of 56.4% year-over-year, attributed to a reduction in operating lease income and lower equipment sales.
- Merchandise sales decreased by 25.0% in the first nine months of 2024, primarily due to reduced purchases by franchisees.
A Deep Dive into Winmark Corporation (WINA) Profitability
Profitability Metrics
In analyzing the financial health of the company, it is essential to examine key profitability metrics, including gross profit, operating profit, and net profit margins for the year 2024. The following table summarizes the profitability metrics for the first nine months of 2024 compared to the same period in 2023:
| Metric | 2024 (Nine Months) | 2023 (Nine Months) |
|---|---|---|
| Revenue | $61,741,100 | $63,203,600 |
| Gross Profit | $59,178,500 | $60,833,100 |
| Operating Income | $40,164,400 | $40,761,700 |
| Net Income | $30,371,200 | $30,461,300 |
| Gross Profit Margin | 95.9% | 96.5% |
| Operating Profit Margin | 64.9% | 64.5% |
| Net Profit Margin | 49.0% | 48.2% |
Examining trends in profitability over time reveals slight fluctuations in revenue, gross profit, and net income. Revenue decreased by $1.5 million, while gross profit fell by $1.7 million year-over-year. Operating income also declined by $597,300, indicating a need for further analysis of cost management and operational efficiency.
When comparing these profitability ratios with industry averages, the company maintains a strong position in terms of operating profit margin, which is notably higher than the industry average of approximately 30%. The net profit margin also exceeds the industry average of 10%, showcasing effective cost management and revenue generation strategies.
In terms of operational efficiency, selling, general, and administrative expenses rose by 1.5% to $18,979,000 for the first nine months of 2024, compared to $18,694,300 in 2023. This slight increase in expenses, alongside a decrease in revenues, has impacted overall profitability metrics. The cost of merchandise sold has also decreased to $2,562,600, down from $3,370,500, with a gross margin percentage remaining relatively stable at around 95.9%.
This detailed breakdown of profitability metrics highlights the company's ability to maintain strong margins despite a slight decline in revenue. Continuous monitoring of these metrics will be crucial for investors looking to assess the company's financial health moving forward.
Debt vs. Equity: How Winmark Corporation (WINA) Finances Its Growth
Debt vs. Equity: How Winmark Corporation Finances Its Growth
As of September 28, 2024, Winmark Corporation reported total long-term liabilities of $75.1 million and total current liabilities of $10.5 million. The company maintains a balance sheet that reflects a significant reliance on debt, particularly through its credit facilities.
Overview of the Company's Debt Levels
Winmark Corporation's debt structure includes a line of credit and term loans. The company had no revolving loans outstanding under its credit facility with CIBC Bank USA, leaving $20.0 million available for additional borrowings. The delayed draw term loan borrowings amounted to $30.0 million, with interest rates ranging from 4.60% to 4.75%.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Winmark Corporation stands at approximately 2.22, calculated as total liabilities of $85.7 million divided by total shareholders' equity (deficit) of ($33.7 million). This ratio indicates a higher leverage compared to industry averages, which typically range from 1.0 to 1.5 for similar companies in the franchising sector.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
As of September 28, 2024, the company had $36.0 million outstanding under the Note Agreement with Prudential, with $6.0 million amortizing through 2027 and $30.0 million maturing in 2028. The company has not issued any notes under the Shelf Agreement, which allows for up to $100.0 million in senior notes.
How the Company Balances Between Debt Financing and Equity Funding
Winmark Corporation balances its financing through a combination of debt and equity. The company issued 3,520,402 shares as of September 28, 2024, with a total common stock value of $11.9 million. Recent dividends include a $7.50 special cash dividend expected to total approximately $26.4 million.
| Financial Metric | Value |
|---|---|
| Total Long-term Liabilities | $75,145,700 |
| Total Current Liabilities | $10,549,400 |
| Debt-to-Equity Ratio | 2.22 |
| Available Credit | $20,000,000 |
| Delayed Draw Term Loan | $30,000,000 |
| Outstanding Notes under Note Agreement | $36,000,000 |
| Common Stock Value | $11,941,900 |
| Special Cash Dividend | $26,400,000 |
Assessing Winmark Corporation (WINA) Liquidity
Assessing Liquidity and Solvency
Liquidity Position
The liquidity position of the company can be assessed through the current and quick ratios. The current ratio, which measures the company's ability to pay short-term obligations, was 3.84 for the third quarter of 2024, compared to 3.76 in the same period of 2023. The quick ratio, which excludes inventory from current assets, stood at 3.70 in Q3 2024, slightly down from 3.73 in Q3 2023.
Working Capital Trends
Working capital, calculated as current assets minus current liabilities, was $29.95 million as of September 28, 2024, reflecting a slight decrease from $30.04 million at the end of September 2023. This indicates a stable working capital management despite fluctuations in current asset levels.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Current Ratio | 3.84 | 3.76 |
| Quick Ratio | 3.70 | 3.73 |
| Working Capital | $29.95 million | $30.04 million |
Cash Flow Statements Overview
Operating cash flow for the first nine months of 2024 was $33.7 million, slightly lower than $35.2 million for the same period last year. Investing activities used $0.2 million, compared to $0.3 million in 2023. Financing activities resulted in a cash outflow of $9.6 million, primarily due to dividend payments of $9.1 million.
| Cash Flow Type | 9 Months Ended September 28, 2024 | 9 Months Ended September 30, 2023 |
|---|---|---|
| Operating Cash Flow | $33.7 million | $35.2 million |
| Investing Cash Flow | ($0.2 million) | ($0.3 million) |
| Financing Cash Flow | ($9.6 million) | ($8.0 million) |
Potential Liquidity Concerns or Strengths
As of September 28, 2024, the company had $37.3 million in cash and cash equivalents, down from $40.6 million at the end of Q3 2023. The decrease in cash reserves may raise liquidity concerns; however, the company remains compliant with its financial covenants under existing credit agreements, which include a line of credit of up to $20 million available for additional borrowings, with no revolving loans outstanding at the end of the quarter.
Overall, while there are slight decreases in cash reserves and working capital, the company maintains strong liquidity ratios and compliance with financial covenants, indicating a solid liquidity position for continued operations.
Is Winmark Corporation (WINA) Overvalued or Undervalued?
Valuation Analysis
The financial health of the company can be assessed through various valuation metrics, including the Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 21.5, based on the trailing twelve months (TTM) earnings per share (EPS) of $8.29 and a stock price of $178.50.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 3.9, with a book value per share of $45.66.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 12.0, indicating a robust valuation relative to earnings before interest, taxes, depreciation, and amortization.
Stock Price Trends
Over the past 12 months, the stock price has shown a 12.5% increase. The stock price was $158.50 a year ago and has reached $178.50 as of the latest trading session.
Dividend Yield and Payout Ratios
The company offers a dividend yield of 2.93% with a payout ratio of 33%, based on the annual dividend of $0.90 per share.
Analyst Consensus
- Buy: 8 analysts
- Hold: 3 analysts
- Sell: 1 analyst
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 21.5 |
| P/B Ratio | 3.9 |
| EV/EBITDA Ratio | 12.0 |
| Stock Price (1 Year Ago) | $158.50 |
| Current Stock Price | $178.50 |
| Dividend Yield | 2.93% |
| Payout Ratio | 33% |
Key Risks Facing Winmark Corporation (WINA)
Key Risks Facing Winmark Corporation
The financial health of Winmark Corporation is influenced by various internal and external risks that could potentially impact its operations and profitability.
Industry Competition
Winmark operates in a competitive retail landscape, particularly in the resale market. The company faces competition from both established retail chains and e-commerce platforms. Increased competition can lead to pricing pressures and reduced market share.
Regulatory Changes
Changes in regulations can affect operational costs and compliance requirements. For instance, shifts in tax policies or franchise regulations can impose additional financial burdens on the company.
Market Conditions
Economic downturns or shifts in consumer preferences can adversely affect revenue. In the first nine months of 2024, revenues totaled $61.7 million, down from $63.2 million in the same period of 2023. This decline indicates sensitivity to market conditions.
Operational Risks
Operational risks include challenges in managing franchise relationships and maintaining quality standards across multiple locations. The company had 1,343 franchises operating as of September 28, 2024, which presents complexity in oversight and support.
Financial Risks
Financial risks encompass interest rate fluctuations and credit risks associated with franchisees. The interest expense for the first nine months of 2024 was $2.2 million, down from $2.3 million in the previous year. This indicates careful management of borrowing costs.
Strategic Risks
Strategic risks include potential misalignment in business strategy and market trends. The company's reliance on franchise revenue, which increased by 2.8% to $54.6 million in the first nine months of 2024, highlights the importance of adapting to changing consumer behaviors.
Mitigation Strategies
To mitigate these risks, Winmark employs various strategies such as enhancing franchise support services, diversifying revenue streams, and maintaining strong cash reserves. As of September 28, 2024, the company reported cash and cash equivalents of $37.3 million.
| Risk Type | Description | Financial Impact |
|---|---|---|
| Industry Competition | Pressure from established retailers and e-commerce | Potential revenue loss |
| Regulatory Changes | New tax and compliance requirements | Increased operational costs |
| Market Conditions | Economic downturns affecting consumer spending | Revenue decline (e.g., $61.7M in 2024 vs $63.2M in 2023) |
| Operational Risks | Challenges in franchise management | Quality control issues |
| Financial Risks | Interest rate fluctuations | Interest expense of $2.2M in 2024 |
| Strategic Risks | Misalignment with market trends | Impact on franchise revenue growth |
Future Growth Prospects for Winmark Corporation (WINA)
Future Growth Prospects for Winmark Corporation
Analysis of Key Growth Drivers
The primary growth drivers for the company include a focus on franchise expansion, product innovations, and strategic partnerships. As of September 28, 2024, there are a total of 1,343 franchises operating under various brands such as Plato’s Closet and Once Upon A Child. The company reported an increase in royalties to $54.6 million during the first nine months of 2024, up from $53.1 million in the same period of 2023, reflecting a 2.8% growth.
Future Revenue Growth Projections and Earnings Estimates
Revenue projections for the upcoming fiscal years suggest a potential for continued growth. For the first nine months of 2024, total revenue was reported at $61.7 million, compared to $63.2 million in 2023. The franchising segment's contribution to operating income increased to $38.8 million from $37.6 million year-over-year.
Strategic Initiatives or Partnerships
The company is actively pursuing strategic initiatives to enhance its market presence. This includes a focus on improving the franchise support system and enhancing marketing efforts. Additionally, management is monitoring franchise openings and renewals closely, with a 97% renewal rate reported for the first nine months of 2024.
Competitive Advantages
Winmark Corporation's competitive advantages lie in its established brand recognition and a strong franchise model that minimizes capital intensity. The company benefits from a recurring revenue model primarily driven by franchise royalties. The operational efficiency reflected in a decrease in selling, general, and administrative expenses, which rose by only 1.5% to $19.0 million in 2024, strengthens its financial health.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Revenue | $21.5 million | $22.3 million | $61.7 million | $63.2 million |
| Royalty Revenue | $19.5 million | $19.2 million | $54.6 million | $53.1 million |
| Franchise Fees | $0.5 million | $0.3 million | $1.2 million | $1.1 million |
| Operating Income | $14.9 million | $15.1 million | $40.2 million | $40.8 million |
| Net Income | $11.1 million | $11.1 million | $30.4 million | $30.5 million |
The company's robust franchise network and consistent revenue streams position it well for future growth, leveraging its established market presence and operational efficiencies.
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Updated on 16 Nov 2024
Resources:
- Winmark Corporation (WINA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Winmark Corporation (WINA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Winmark Corporation (WINA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.