Winmark Corporation

Company Overview

Business Model: Winmark Corporation, operating as Winmark – the Resale Company®, is a nationally recognized franchisor focused on sustainability and small business formation. The Company franchises five distinct resale brands: Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore®, and Music Go Round®. Its core value proposition emphasizes consumer value by offering high-quality used merchandise at substantial savings compared to new items, and by purchasing customers’ used goods. A limited amount of new merchandise is also offered. Revenue is primarily generated through royalties from franchisees based on a percentage of retail store gross sales, initial franchise fees, and fees for software licenses and marketing services.

Market Position: Winmark Corporation is positioned as a leader in the circular economy, having operated for over 35 years. As of December 27, 2025, there were 1,378 franchises in operation across the United States and Canada, with over 2,800 available territories. The Company estimates that its resale brands have extended the lives of over 2.1 billion items since 2010, including over 195 million items in 2025 alone. Winmark Corporation supports its franchisees with technology, tools, and training to expand operations and evolve into multi-channel retailers.

Recent Strategic Developments:

• E-commerce Platform Expansion: Winmark Corporation has developed an e-commerce platform enabling franchisees of its Music Go Round, Play It Again Sports, and Style Encore brands to market and sell in-store inventory online, offering both in-store pickup and shipment options.
• POS System Modernization: The Company is pursuing a strategic initiative to modernize its point-of-sale (POS) platform to enhance the franchisee and in-store experience by addressing legacy constraints.
• Leasing Business Run-off Completion: Winmark Corporation completed the orderly run-off of its middle-market equipment leasing business, Winmark Capital Corporation, as of December 27, 2025, having ceased soliciting new leasing customers in May 2021.

Geographic Footprint: Winmark Corporation operates 1,378 franchised stores across the United States and Canada. As of December 27, 2025, 165 of these stores were located in Canada. The majority of the Company's revenues are generated from United States operations. Revenues from Canadian franchisees were $7.8 million in 2025, $7.3 million in 2024, and $6.8 million in 2023. All significant assets are located within the United States.

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Gross Margin: 96.4%
• Operating Margin: 63.4%
• Net Margin: 48.4%

Investment in Growth:

• Capital Expenditures: $0.2 million
• Strategic Investments: Winmark Corporation is undertaking a strategic initiative to modernize its POS platform.

Business Segment Analysis

Franchising Segment

Financial Performance:

• Revenue: $83.4 million (+4.9% YoY)
• Operating Margin: 62.5%
• Key Growth Drivers: The increase in segment contribution was primarily due to higher franchise retail sales and an increase in the number of franchise stores in 2025 compared to 2024.

Product Portfolio:

• Plato’s Closet: Buys and sells gently used clothing and accessories for the teenage and young adult market.
• Once Upon A Child: Buys and sells gently used and, to a lesser extent, new children’s clothing, toys, furniture, equipment, and accessories for infants to 12-year-olds.
• Play It Again Sports: Buys, sells, and trades gently used and new sporting goods, equipment, and accessories for various athletic activities, with merchandise adjusted for seasonal and regional differences.
• Style Encore: Buys and sells gently used women’s (and to a lesser extent, men’s) apparel, shoes, and accessories.
• Music Go Round: Buys, sells, and trades gently used and, to a lesser extent, new musical instruments, speakers, amplifiers, music-related electronics, and related accessories.

Market Dynamics: The segment operates in value-oriented retailing, benefiting from consumer demand for savings on used merchandise. It provides a unique source of value by purchasing used merchandise directly from consumers, which also increases brand awareness. Competition is faced from established local stores, discount chains, traditional retailers, resale/thrift/consignment shops, garage sales, and increasingly, online used and new goods marketplaces.

Other Operating Segment (Equipment Leasing)

Financial Performance:

• Revenue: $2.6 million (+45.3% YoY)
• Operating Margin: 96.2%
• Key Growth Drivers: The increase in segment contribution was primarily due to the settlement of outstanding customer litigation.
• Status: As of December 27, 2025, the run-off of this portfolio was completed, and Winmark Corporation no longer has any leasing customers or leased assets.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $2.4 million (7,944 shares) were repurchased in 2025.
• Dividend Payments: $49.1 million was paid in cash dividends in 2025, including a $10.00 per share special cash dividend.
• Dividend Yield: 5.53% (based on total dividends paid in 2025 and aggregate market value of common equity held by non-affiliates as of the most recently completed second fiscal quarter).
• Future Capital Return Commitments: The Board of Directors has authorized the repurchase of an additional 70,656 shares of common stock.

Balance Sheet Position (as of December 27, 2025):

• Cash and Equivalents: $10.5 million (includes restricted cash)
• Total Debt: $60.0 million (Line of Credit/Term loan: $30.0 million; Notes Payable: $30.0 million)
• Net Cash Position: -$49.5 million (Net Debt)
• Debt Maturity Profile:
  • 2026: $0
  • 2027: $0
  • 2028: $30.0 million (Notes Payable)
  • 2029: $30.0 million (Term Loans)
  • 2030 and Thereafter: $0

Cash Flow Generation (2025):

• Operating Cash Flow: $44.9 million
• Free Cash Flow: $44.7 million

Operational Excellence

Production & Service Model: Winmark Corporation employs a franchising business model, distributing goods and services through its retail brands. It owns the retail business brand and operating system, granting franchisees the right to use these in exchange for adherence to specified systems, standards, and formats. The Company provides comprehensive initial and ongoing support, including:

• Training: Mandatory new owner orientation covering business planning, lease evaluation, insurance, and financing, followed by store operations training (POS, inventory, sales, marketing).
• Operations Support: Ongoing guidance through periodic in-person or virtual store visits and business assessments to ensure compliance and assist with operational issues.
• Purchasing: Franchisees are trained to evaluate, purchase, and price used goods directly from customers using specialized computer point-of-sale systems with standardized pricing information. Centralized buying services are provided for new products, including credit and billing for Play It Again Sports franchisees.

Supply Chain Architecture:

• Key Suppliers & Partners:
  • Sporting Goods (Play It Again Sports): Adidas, Wilson Sporting Goods, Champro Sports, Rawlings/Easton, CCM Hockey, Bauer Hockey.
  • Children's Products (Once Upon A Child): Wild Side Accessories, Melissa & Doug, Nuby.
  • Musical Instruments (Music Go Round): KMC/Musicorp, RapcoHorizon Company, D’Addario, GHS Corporation, Ernie Ball.
  • Technology (POS System): Franchisees purchase computer hardware for the proprietary Data Recycling System software from Winmark Corporation.

Facility Network:

• Headquarters: Winmark Corporation leases a 41,016 square foot facility in Minneapolis, Minnesota, which serves as its corporate headquarters. The current lease expires in 2029.

Market Access & Customer Relationships

Go-to-Market Strategy:

• Distribution Channels: Winmark Corporation primarily utilizes a franchised retail store model.
  • Advertising & Marketing: Franchisees are required to spend a minimum of 5% of their gross sales on approved advertising and marketing, which includes television, radio, point-of-purchase materials, in-store signage, local store marketing programs, email promotions, website promotions, and participation in social and digital media. Winmark Corporation has the option to increase this to 6%, with up to 2% potentially contributed to a Company-managed advertising fund.
  • Digital Platforms: An e-commerce platform is available for Music Go Round, Play It Again Sports, and Style Encore franchisees, allowing online sales of in-store inventory. Franchisees also leverage social media platforms (Facebook and Instagram) and third-party e-commerce platforms (Shopify) and marketplaces (eBay and Reverb).

Customer Portfolio:

• Franchisees: Winmark Corporation seeks prospective franchisees with management and operations experience, sufficient net worth, prior business experience, and a commitment to integral involvement in their business operations.
• End Consumers: The brands target value-conscious consumers seeking quality used merchandise at significant savings, as well as individuals looking to sell their gently used items.

Geographic Revenue Distribution:

• United States: Generates the majority of total revenue.
• Canada: Contributed $7.8 million in franchising revenue in 2025, representing approximately 9.1% of total revenues.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The retailing industry, encompassing apparel, sporting goods, and musical instruments, is highly competitive. The market includes a diverse range of players from established local stores to large discount chains and traditional retailers. The resale market specifically sees competition from thrift, consignment shops, garage sales, and a growing number of online marketplaces. There is an emerging trend of retail and consumer apparel brands participating in selling previously used items, often through e-commerce platforms.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Plato’s Closet: Competes with specialty apparel stores (e.g., American Eagle, Gap, Abercrombie & Fitch, Old Navy, Hollister), large retailers (Target, Walmart), and other franchisors in the teenage resale clothing market.
• Once Upon A Child: Competes with large retailers (Walmart, Target) and specialty children’s retail stores (Carter’s, Gap Kids), as well as other franchisors in the children’s resale market.
• Play It Again Sports: Competes with large sporting goods retailers (Dick’s Sporting Goods, Academy Sports & Outdoors), regional and local sporting goods stores, Target, and Walmart.
• Style Encore: Competes with a wide range of women’s (and to a lesser extent, men’s) apparel stores and other franchisors in the women’s resale clothing market.
• Music Go Round: Competes with large musical instrument retailers (Guitar Center) and local independent musical instrument stores.
• Online Marketplaces (across brands): eBay, craigslist, Facebook Marketplace, Poshmark, thredUP, Amazon, and platforms developed by retail/consumer apparel brands.

Emerging Competitive Threats: New entrants to the used merchandise market, disruptive technologies, and alternative solutions, including direct participation by retail and consumer apparel brands in the resale space.

Competitive Response Strategy: Winmark Corporation's strategy to maintain competitive advantage is based on the strength of its value-oriented brands and the name recognition associated with its service marks. For attracting franchisees, it competes on factors such as initial investment, franchise fee, royalty rate, profitability, and franchisor support services.

Risk Assessment Framework

Strategic & Market Risks

• Franchise Renewal Dependence: Winmark Corporation is dependent on the renewal of its 10-year franchise agreements. While 98% of agreements up for renewal were renewed in 2025, a significant number of agreements are set to expire in the coming years (110 in 2026, 103 in 2027, 92 in 2028). Non-renewal could materially and adversely impact financial performance.
• New Franchisee Dependence: The Company's ability to grow revenue and profitability relies on increasing the number of new franchise openings. Unfavorable macro-economic conditions could hinder potential franchisees' ability to secure financing or impact their net worth, potentially leading to lower opening rates.
• Competitive Industry: The retail industry is highly competitive, with many retailers and online marketplaces possessing greater financial and other resources than Winmark Corporation and its franchisees. Increased competition from new entrants or expanding existing players in the used merchandise market could adversely affect the business.

Operational & Execution Risks

• Used Merchandise Supply: Franchisees' success is dependent on a continuous supply of high-quality used merchandise from the general public, which may be irregular or unreliable. Adherence to product safety and other regulatory requirements may further limit available used merchandise.
• POS System Reliance and Modernization: The franchise system relies on the continued availability, reliability, and performance of its required point-of-sale (POS) system. The ongoing strategic initiative to modernize this mission-critical system is complex and carries operational and execution risks, including potential system instability, workflow interruptions, or data inconsistencies during development and deployment.

Financial & Regulatory Risks

• Accounts Receivable Collection: Inability to collect accounts receivable from franchisees could materially adversely impact results of operations and financial condition.
• Cash Concentration: Winmark Corporation may hold cash assets at financial institutions in amounts exceeding Federal Deposit Insurance Corporation (FDIC) insurance limits, posing a risk of loss in the event of financial institution failure.
• Debt Covenants: The Company's line of credit/term loan and note facilities impose operating and financial restrictions, including debt service coverage and leverage tests. Failure to comply could result in default and acceleration of indebtedness.
• Government Regulation: As a franchisor, Winmark Corporation is subject to various federal and state franchise laws, including pre-sale registration and disclosure requirements, and regulations governing franchisor-franchisee relationships. Future legislation could expand these requirements or impose additional costs. Evolving labor and employment laws could also lead to claims against Winmark Corporation for franchisee-related liabilities.
• Data Security Risks: Despite security measures, the Company faces the risk of security system breaches, potentially leading to unauthorized access, theft, or misuse of confidential information. Such incidents could result in negative publicity, governmental inquiry, litigation, and financial obligations.

Geopolitical & External Risks

• Pandemics and Public Health Emergencies: Pandemics, epidemics, or other public health emergencies (e.g., COVID-19) can adversely affect Winmark Corporation's business, results of operations, financial condition, cash flows, and stock market value due to uncertain severity, duration, and economic impacts.

Innovation & Technology Leadership

Research & Development Focus:

• Core Technology Areas: Winmark Corporation's technology focus includes its proprietary Data Recycling System software, which is integral to its point-of-sale (POS) system, and the development of e-commerce platforms for specific brands.
• Innovation Pipeline: A strategic initiative is underway to modernize the Company's POS platform to enhance functionality and user experience for franchisees.

Intellectual Property Portfolio:

• Trademark Strategy: Winmark Corporation holds various trademark registrations and pending applications for its brands, including Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore, Music Go Round, Winmark, Winmark – the Resale Company, and Resale for Everyone. The Company intends to protect these service marks through legal action and ensures their timely renewal.

Technology Partnerships: Winmark Corporation's POS environment relies on third-party vendors and internal support resources.

Human Capital Strategy

Workforce Composition (as of December 27, 2025):

• Total Employees: 87 employees.
• None of the employees are covered by a collective bargaining agreement.
• Franchisees and their employees are independent business owners and are not included in Winmark Corporation's employee count.

Talent Management:

• Acquisition & Retention: Winmark Corporation emphasizes employee development, offering learning and mentorship opportunities, leadership succession planning, and encouraging internal promotions to foster an engaged and inclusive work environment.
• Employee Value Proposition: Compensation programs are designed to support employees' financial, physical, and mental well-being. These include competitive salaries, robust health and welfare benefits, a 401(k) plan with matching contributions, profit-sharing, generous paid leave policies, and an employee assistance program.

Diversity & Development: The Company places a strong emphasis on employee welfare, health, and safety.

Environmental & Social Impact

Environmental Commitments:

• Climate Strategy: As a leader in the circular economy for over 35 years, Winmark Corporation's brands offer a sustainable solution by keeping clothing, sporting goods, and musical instruments out of landfills. In 2025 alone, stores across its five brands extended the lives of over 195 million items. This model contributes to reduced water and energy consumption, pollution, and greenhouse gas emissions.

Social Impact Initiatives:

• Community Investment: The franchised store model provides local communities with accessible ways to buy and sell used goods, fostering local economic activity and resource recycling.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: The Plato’s Closet and Once Upon A Child brands typically experience higher sales volumes during the spring months and the back-to-school season. The Play It Again Sports brand generally sees higher sales volumes during the winter season.
• Overall Impact: The differing seasonal trends across Winmark Corporation's brands partially offset each other, resulting in no significant seasonality trends on a Company-wide basis.

Regulatory Environment & Compliance

Regulatory Framework:

• Industry-Specific Regulations: Winmark Corporation is subject to various federal and state franchise laws and regulations. Pre-sale franchise registration and/or disclosure requirements are imposed by 14 U.S. states, the Federal Trade Commission, and six Canadian Provinces. Additionally, several states regulate substantive aspects of the franchisor-franchisee relationship, such as termination, nonrenewal, transfer, discrimination among franchisees, and competition.
• Environmental Compliance: The Company does not currently incur any material costs or effects of compliance with federal, state, and local environmental laws.

Legal Proceedings: Winmark Corporation is not a party to any material litigation and is not aware of any threatened litigation that it believes would have a material adverse effect on its business.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: The effective tax rate was 21.6% in 2025, a decrease from 22.0% in 2024. This decrease was primarily due to higher tax benefits on the exercise of non-qualified stock options.
• Geographic Tax Planning: Income from continuing operations before income taxes included $45.3 million from domestic sources and $7.8 million from foreign (Canadian) sources in 2025. The Company's tax expense includes foreign tax effects such as Canadian withholding tax and cross-border tax laws, as well as foreign tax credits.
• Income Taxes Paid: Total income taxes paid were $11.8 million in 2025.