Winmark Corp. Reports Operating Results (10-Q)
Winmark Corp has a market cap of $263.9 million; its shares were traded at around $54.7 with a P/E ratio of 18.4 and P/S ratio of 5.1. The dividend yield of Winmark Corp stocks is 0.2%. Winmark Corp had an annual average earning growth of 15.9% over the past 10 years.
Highlight of Business Operations:Our most profitable source of franchising revenue is royalties received from our franchise partners. During the first three months of 2012, our royalties increased $1.2 million or 17.5% compared to the first three months of 2011.
During the first three months of 2012, we purchased $4.3 million in equipment for lease customers compared to $4.7 million in the first three months of 2011. Overall, our leasing portfolio (net investment in leases current and long-term) decreased to $29.6 million at March 31, 2012 from $29.8 million at December 31, 2011. Leasing income net of leasing expense during the first three months of 2012 was $2.2 million compared to $2.7 million in the same period last year. Fluctuations in period-to-period leasing income and leasing expense result primarily from the manner and timing in which leasing income and leasing expense is recognized over the term of each particular lease in accordance with accounting guidance applicable to leasing. For this reason, we believe that more meaningful levels of leasing activity are the purchases of equipment for lease customers and the medium- to long-term trend in the size of the leasing portfolio. Our earnings are also impacted by credit losses. During the first three months of 2012, our provision for credit losses decreased to $(53,000) from $45,400 in the first three months of 2011.
Royalties increased to $8.3 million for the first three months of 2012 from $7.1 million for the first three months of 2011, a 17.5% increase. The increase was due to higher Platos Closet and Once Upon A Child royalties of $0.9 million and $0.5 million, respectively. The increase in royalties for these brands is primarily due to higher franchisee retail sales in these brands as well as having 31 additional Platos Closet franchise stores in the first three months of 2012 compared to the same period last year.
The franchising segments operating income for the first three months of 2012 increased by $1.1 million, or 29.1%, to $4.8 million from $3.7 million for the first three months of 2011. The increase in segment contribution was primarily due to increased royalty revenue.
The Company collects royalties from each retail franchise based on a percentage of retail store gross sales. The Company recognizes royalties as revenue when earned. At the end of each accounting period, estimates of royalty amounts due are made based on applying historical weekly sales information to the number of weeks of unreported franchisee sales. If there are significant changes in the actual performance of franchisees versus the Companys estimates, its royalty revenue would be impacted. During the first three months of 2012, the Company collected $89,400 more than it estimated at December 31, 2011. As of March 31, 2012, the Companys royalty receivable was $945,900.
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