Winmark Corporation Announces Second Quarter Results

Winmark Corporation WINA announced today net income for the quarter ended June 29, 2019 of $7,301,900 (or $1.79 per share diluted) compared to net income of $7,143,000 (or $1.73 per share diluted) in the second quarter of 2018. For the six months ended June 29, 2019, net income was $14,574,100 (or $3.52 per share diluted) compared to net income of $14,103,400 (or $3.42 per share diluted) for the same period last year.

Brett D. Heffes, Chief Executive Officer, commented, "Our franchisees are continuing to perform at a high level, but we have been disappointed by the activity in our leasing business. The result of the recent changes to our leasing organization will be a leaner cost structure that is better aligned with the current level of operations."

Winmark Corporation creates, supports and finances business. At June 29, 2019, there were 1,249 franchises in operation under the brands Plato's Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. An additional 43 retail franchises have been awarded but are not open. In addition, at June 29, 2019, the Company had a lease portfolio of $33.0 million.

This press release contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), relating to future events or the future financial performance of the Company. Such forward-looking statements are only predictions or statements of intention subject to risks and uncertainties and actual events or results could differ materially from those anticipated. Because actual result may differ, shareholders and prospective investors are cautioned not to place undue reliance on such forward-looking statements.

WINMARK CORPORATION CONDENSED BALANCE SHEETS (unaudited)

	June 29, 2019			December 29, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	1,101,200		$	2,496,000
Restricted cash		65,000			80,000
Receivables, net		1,510,300			1,553,100
Net investment in leases - current		15,923,700			18,547,500
Income tax receivable		1,608,300			565,500
Inventories		114,400			107,600
Prepaid expenses		853,000			901,600
Total current assets		21,175,900			24,251,300

Net investment in leases – long-term		17,059,200			20,455,500
Property and equipment, net		1,936,400			866,200
Operating lease right of use asset		4,867,900		—
Goodwill		607,500			607,500
Other assets		509,200			482,600
	$	46,156,100		$	46,663,100

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable, net	$	3,236,100		$	3,236,100
Accounts payable		1,167,400			1,351,800
Accrued liabilities		2,783,300			3,128,600
Discounted lease rentals		3,172,700			3,021,900
Deferred revenue		1,725,500			1,744,900
Total current liabilities		12,085,000			12,483,300

Long-Term Liabilities:
Line of credit		6,000,000		—
Notes payable, net		23,986,800			25,604,900
Discounted lease rentals		1,752,900			2,723,500
Deferred revenue		8,093,900			8,432,400
Operating lease liabilities		6,061,000		—
Other liabilities		818,900			1,079,200
Deferred income taxes		1,188,000			1,148,300
Total long-term liabilities		47,901,500			38,988,300

Shareholders' Equity (Deficit):
Common stock, no par, 10,000,000 shares authorized, 3,781,339 and 3,907,686 shares issued and outstanding		1,305,600			4,425,600
Retained earnings (accumulated deficit)		(15,136,000	)		(9,234,100	)

Total shareholders' equity (deficit)		(13,830,400	)		(4,808,500	)
	$	46,156,100		$	46,663,100

WINMARK CORPORATION CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

	Quarter Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
REVENUE:
Royalties	$	12,653,200		$	11,821,000		$	24,414,600		$	22,870,000
Leasing income		3,203,000			4,857,100			8,358,300			10,385,900
Merchandise sales		721,800			704,900			1,332,800			1,481,800
Franchise fees		413,900			378,100			805,700			779,000
Other		412,300			398,700			824,000			804,100
Total revenue		17,404,200			18,159,800			35,735,400			36,320,800
COST OF MERCHANDISE SOLD		681,200			681,000			1,252,700			1,423,500
LEASING EXPENSE		370,900			495,800			1,069,600			1,050,700
PROVISION FOR CREDIT LOSSES		69,300			109,000			79,400			204,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		6,435,900			6,799,300			13,420,300			13,493,700
Income from operations		9,846,900			10,074,700			19,913,400			20,148,900
INTEREST EXPENSE		(500,300	)		(657,900	)		(942,500	)		(1,401,700	)
INTEREST AND OTHER INCOME (EXPENSE)		(6,100	)		(11,300	)		(6,400	)		(12,300	)
Income before income taxes		9,340,500			9,405,500			18,964,500			18,734,900
PROVISION FOR INCOME TAXES		(2,038,600	)		(2,262,500	)		(4,390,400	)		(4,631,500	)
NET INCOME	$	7,301,900		$	7,143,000		$	14,574,100		$	14,103,400
EARNINGS PER SHARE – BASIC	$	1.94		$	1.85		$	3.80		$	3.66
EARNINGS PER SHARE – DILUTED	$	1.79		$	1.73		$	3.52		$	3.42
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC		3,771,439			3,858,446			3,839,563			3,852,880
WEIGHTED AVERAGE SHARES OUTSTANDING – DILUTED		4,072,408			4,133,535			4,135,827			4,129,055

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