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 ClosetĀ®, Once Upon A ChildĀ®, Play It Again SportsĀ®, Style EncoreĀ® and Music Go RoundĀ®. 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)

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

June 29, 2019

Ā 

December 29, 2018

ASSETS

Ā 

Current Assets:

Ā 

Ā 

Ā 

Ā 

Ā 

Cash and cash equivalents

Ā 

$

1,101,200

Ā 

Ā 

$

2,496,000

Ā 

Restricted cash

Ā 

Ā 

65,000

Ā 

Ā 

Ā 

80,000

Ā 

Receivables, net

Ā 

Ā 

1,510,300

Ā 

Ā 

Ā 

1,553,100

Ā 

Net investment in leases - current

Ā 

Ā 

15,923,700

Ā 

Ā 

Ā 

18,547,500

Ā 

Income tax receivable

Ā 

Ā 

1,608,300

Ā 

Ā 

Ā 

565,500

Ā 

Inventories

Ā 

Ā 

114,400

Ā 

Ā 

Ā 

107,600

Ā 

Prepaid expenses

Ā 

Ā 

853,000

Ā 

Ā 

Ā 

901,600

Ā 

Total current assets

Ā 

Ā 

21,175,900

Ā 

Ā 

Ā 

24,251,300

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Net investment in leases ā€“ long-term

Ā 

Ā 

17,059,200

Ā 

Ā 

Ā 

20,455,500

Ā 

Property and equipment, net

Ā 

Ā 

1,936,400

Ā 

Ā 

Ā 

866,200

Ā 

Operating lease right of use asset

Ā 

Ā 

4,867,900

Ā 

Ā 

ā€”

Ā 

Goodwill

Ā 

Ā 

607,500

Ā 

Ā 

Ā 

607,500

Ā 

Other assets

Ā 

Ā 

509,200

Ā 

Ā 

Ā 

482,600

Ā 

Ā 

Ā 

$

46,156,100

Ā 

Ā 

$

46,663,100

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Ā 

Current Liabilities:

Ā 

Ā 

Ā 

Ā 

Ā 

Notes payable, net

Ā 

$

3,236,100

Ā 

Ā 

$

3,236,100

Ā 

Accounts payable

Ā 

Ā 

1,167,400

Ā 

Ā 

Ā 

1,351,800

Ā 

Accrued liabilities

Ā 

Ā 

2,783,300

Ā 

Ā 

Ā 

3,128,600

Ā 

Discounted lease rentals

Ā 

Ā 

3,172,700

Ā 

Ā 

Ā 

3,021,900

Ā 

Deferred revenue

Ā 

Ā 

1,725,500

Ā 

Ā 

Ā 

1,744,900

Ā 

Total current liabilities

Ā 

Ā 

12,085,000

Ā 

Ā 

Ā 

12,483,300

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Long-Term Liabilities:

Ā 

Ā 

Ā 

Ā 

Ā 

Line of credit

Ā 

Ā 

6,000,000

Ā 

Ā 

ā€”

Ā 

Notes payable, net

Ā 

Ā 

23,986,800

Ā 

Ā 

Ā 

25,604,900

Ā 

Discounted lease rentals

Ā 

Ā 

1,752,900

Ā 

Ā 

Ā 

2,723,500

Ā 

Deferred revenue

Ā 

Ā 

8,093,900

Ā 

Ā 

Ā 

8,432,400

Ā 

Operating lease liabilities

Ā 

Ā 

6,061,000

Ā 

Ā 

ā€”

Ā 

Other liabilities

Ā 

Ā 

818,900

Ā 

Ā 

Ā 

1,079,200

Ā 

Deferred income taxes

Ā 

Ā 

1,188,000

Ā 

Ā 

Ā 

1,148,300

Ā 

Total long-term liabilities

Ā 

Ā 

47,901,500

Ā 

Ā 

Ā 

38,988,300

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Shareholders' Equity (Deficit):

Ā 

Ā 

Ā 

Ā 

Ā 

Common stock, no par, 10,000,000 shares authorized, 3,781,339 and 3,907,686 shares issued and outstanding

Ā 

Ā 

1,305,600

Ā 

Ā 

Ā 

4,425,600

Ā 

Retained earnings (accumulated deficit)

Ā 

Ā 

(15,136,000

)

Ā 

Ā 

(9,234,100

)

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Total shareholders' equity (deficit)

Ā 

Ā 

(13,830,400

)

Ā 

Ā 

(4,808,500

)

Ā 

Ā 

$

46,156,100

Ā 

Ā 

$

46,663,100

WINMARK CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Quarter Ended

Ā 

Six Months Ended

Ā 

Ā 

June 29, 2019

Ā 

June 30, 2018

Ā 

June 29, 2019

Ā 

June 30, 2018

REVENUE:

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Ā 

Royalties

Ā 

$

12,653,200

Ā 

Ā 

$

11,821,000

Ā 

Ā 

$

24,414,600

Ā 

Ā 

$

22,870,000

Ā 

Leasing income

Ā 

Ā 

3,203,000

Ā 

Ā 

Ā 

4,857,100

Ā 

Ā 

Ā 

8,358,300

Ā 

Ā 

Ā 

10,385,900

Ā 

Merchandise sales

Ā 

Ā 

721,800

Ā 

Ā 

Ā 

704,900

Ā 

Ā 

Ā 

1,332,800

Ā 

Ā 

Ā 

1,481,800

Ā 

Franchise fees

Ā 

Ā 

413,900

Ā 

Ā 

Ā 

378,100

Ā 

Ā 

Ā 

805,700

Ā 

Ā 

Ā 

779,000

Ā 

Other

Ā 

Ā 

412,300

Ā 

Ā 

Ā 

398,700

Ā 

Ā 

Ā 

824,000

Ā 

Ā 

Ā 

804,100

Ā 

Total revenue

Ā 

Ā 

17,404,200

Ā 

Ā 

Ā 

18,159,800

Ā 

Ā 

Ā 

35,735,400

Ā 

Ā 

Ā 

36,320,800

Ā 

COST OF MERCHANDISE SOLD

Ā 

Ā 

681,200

Ā 

Ā 

Ā 

681,000

Ā 

Ā 

Ā 

1,252,700

Ā 

Ā 

Ā 

1,423,500

Ā 

LEASING EXPENSE

Ā 

Ā 

370,900

Ā 

Ā 

Ā 

495,800

Ā 

Ā 

Ā 

1,069,600

Ā 

Ā 

Ā 

1,050,700

Ā 

PROVISION FOR CREDIT LOSSES

Ā 

Ā 

69,300

Ā 

Ā 

Ā 

109,000

Ā 

Ā 

Ā 

79,400

Ā 

Ā 

Ā 

204,000

Ā 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Ā 

Ā 

6,435,900

Ā 

Ā 

Ā 

6,799,300

Ā 

Ā 

Ā 

13,420,300

Ā 

Ā 

Ā 

13,493,700

Ā 

Income from operations

Ā 

Ā 

9,846,900

Ā 

Ā 

Ā 

10,074,700

Ā 

Ā 

Ā 

19,913,400

Ā 

Ā 

Ā 

20,148,900

Ā 

INTEREST EXPENSE

Ā 

Ā 

(500,300

)

Ā 

Ā 

(657,900

)

Ā 

Ā 

(942,500

)

Ā 

Ā 

(1,401,700

)

INTEREST AND OTHER INCOME (EXPENSE)

Ā 

Ā 

(6,100

)

Ā 

Ā 

(11,300

)

Ā 

Ā 

(6,400

)

Ā 

Ā 

(12,300

)

Income before income taxes

Ā 

Ā 

9,340,500

Ā 

Ā 

Ā 

9,405,500

Ā 

Ā 

Ā 

18,964,500

Ā 

Ā 

Ā 

18,734,900

Ā 

PROVISION FOR INCOME TAXES

Ā 

Ā 

(2,038,600

)

Ā 

Ā 

(2,262,500

)

Ā 

Ā 

(4,390,400

)

Ā 

Ā 

(4,631,500

)

NET INCOME

Ā 

$

7,301,900

Ā 

Ā 

$

7,143,000

Ā 

Ā 

$

14,574,100

Ā 

Ā 

$

14,103,400

Ā 

EARNINGS PER SHARE ā€“ BASIC

Ā 

$

1.94

Ā 

Ā 

$

1.85

Ā 

Ā 

$

3.80

Ā 

Ā 

$

3.66

Ā 

EARNINGS PER SHARE ā€“ DILUTED

Ā 

$

1.79

Ā 

Ā 

$

1.73

Ā 

Ā 

$

3.52

Ā 

Ā 

$

3.42

Ā 

WEIGHTED AVERAGE SHARES OUTSTANDING ā€“ BASIC

Ā 

Ā 

3,771,439

Ā 

Ā 

Ā 

3,858,446

Ā 

Ā 

Ā 

3,839,563

Ā 

Ā 

Ā 

3,852,880

Ā 

WEIGHTED AVERAGE SHARES OUTSTANDING ā€“ DILUTED

Ā 

Ā 

4,072,408

Ā 

Ā 

Ā 

4,133,535

Ā 

Ā 

Ā 

4,135,827

Ā 

Ā 

Ā 

4,129,055

Ā 

Ā 

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