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What changed in WINMARK CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of WINMARK CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+91 added−100 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-10)

Top changes in WINMARK CORP's 2023 10-K

91 paragraphs added · 100 removed · 82 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAdditionally, our franchisees use other vehicles to drive non-store sales including social media platforms (Facebook and Instagram) as well as third-party marketplaces (including Shopify and eBay). ​ The following table presents the royalties and franchise fees contributed by each of our brands for the past three years and the corresponding percentage of consolidated revenues for each such year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Royalties and Franchise Fees ​ ​ ​ ​ ​ ​ ​ ​ (in millions) ​ % of Consolidated Revenue ​ 2020 2021 2022 2020 2021 2022 Plato’s Closet ​ $ 20.2 ​ $ 26.8 ​ $ 29.4 30.5 % 34.3 % 36.2 % Once Upon A Child ​ 14.1 ​ 18.9 ​ 21.1 21.4 ​ 24.1 ​ 25.9 ​ Play It Again Sports ​ 10.4 ​ 12.6 ​ 13.6 15.8 ​ 16.1 ​ 16.7 ​ Style Encore ​ 2.0 ​ 2.7 ​ 3.1 3.0 ​ 3.4 ​ 3.8 ​ Music Go Round ​ 1.0 ​ 1.3 ​ 1.5 1.6 ​ 1.7 ​ 1.8 ​ ​ ​ $ 47.7 ​ $ 62.3 ​ $ 68.7 72.3 % 79.6 % 84.4 % ​ The following table presents a summary of our net store growth and renewal activity for the fiscal year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AVAILABLE ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ ​ ​ TOTAL ​ FOR ​ COMPLETED ​ ​ ​ 12/25/2021 OPENED CLOSED 12/31/2022 RENEWAL RENEWALS % RENEWED Plato’s Closet 489 14 (3) 500 ​ 55 ​ 55 ​ 100 % Once Upon A Child 401 8 (3) 406 ​ 32 ​ 32 ​ 100 % Play It Again Sports 273 16 (1) (8) ​ 281 ​ 57 ​ 57 ​ 100 % Style Encore 71 4 (4) 71 ​ — ​ — ​ N/A ​ Music Go Round 37 — — 37 ​ — ​ — ​ N/A ​ Total Franchised Stores (2) 1,271 42 (18) 1,295 144 ​ 144 100 % ​ (1) Includes 11 stores formerly operated outside the Winmark franchise system.
Biggest changeAdditionally, our franchisees use other vehicles to drive non-store sales including social media platforms (Facebook and Instagram) as well as third-party e-commerce platforms (Shopify) and marketplaces (eBay). ​ 2 Table of Contents The following table presents the royalties and franchise fees contributed by each of our brands for the past three years and the corresponding percentage of consolidated revenues for each such year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Royalties and Franchise Fees ​ ​ ​ ​ ​ ​ ​ ​ (in millions) ​ % of Consolidated Revenue ​ 2021 2022 2023 2021 2022 2023 Plato’s Closet ​ $ 26.8 ​ $ 29.4 ​ $ 30.2 34.3 % 36.2 % 36.3 % Once Upon A Child ​ 18.9 ​ 21.1 ​ 23.1 24.1 ​ 25.9 ​ 27.7 ​ Play It Again Sports ​ 12.6 ​ 13.6 ​ 13.8 16.1 ​ 16.7 ​ 16.6 ​ Style Encore ​ 2.7 ​ 3.1 ​ 3.1 3.4 ​ 3.8 ​ 3.8 ​ Music Go Round ​ 1.3 ​ 1.5 ​ 1.5 1.7 ​ 1.8 ​ 1.8 ​ ​ ​ $ 62.3 ​ $ 68.7 ​ $ 71.7 79.6 % 84.4 % 86.2 % ​ The following table presents a summary of our net store growth and renewal activity for the fiscal year ended December 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AVAILABLE ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ ​ ​ TOTAL ​ FOR ​ COMPLETED ​ ​ ​ 12/31/2022 OPENED CLOSED 12/30/2023 RENEWAL RENEWALS % RENEWED Plato’s Closet 500 11 (5) 506 ​ 65 ​ 65 ​ 100 % Once Upon A Child 406 11 (1) 416 ​ 54 ​ 54 ​ 100 % Play It Again Sports 281 17 (4) ​ 294 ​ 34 ​ 34 ​ 100 % Style Encore 71 — (5) 66 ​ 18 ​ 17 ​ 94 % Music Go Round 37 — — 37 ​ 6 ​ 6 ​ 100 % Total Franchised Stores (1) 1,295 39 (15) 1,319 177 ​ 176 99 % ​ (1) All stores are owned and operated by franchisees.
During the past three years, we renewed 99% of franchise agreements up for renewal. ​ Competition ​ Retailing, including the sale of apparel, sporting goods and musical instruments, is highly competitive. Many retailers have substantially greater financial and other resources than we do.
During the past three years, we renewed over 99% of franchise agreements up for renewal. ​ Competition ​ Retailing, including the sale of apparel, sporting goods and musical instruments, is highly competitive. Many retailers have substantially greater financial and other resources than we do.
Additionally, we provide training to our management team and employees regarding diversity and inclusion and we continue to actively work to increase representation among underrepresented demographic groups within our employee base. ​ Available Information We maintain a Web site at www.winmarkcorporation.com, the contents of which are not part of or incorporated by reference into this Annual Report on Form 10-K.
Additionally, we provide training to our management team and 7 Table of Contents employees regarding diversity and inclusion and we continue to actively work to increase representation among underrepresented demographic groups within our employee base. ​ Available Information We maintain a Web site at www.winmarkcorporation.com, the contents of which are not part of or incorporated by reference into this Annual Report on Form 10-K.
The loss of any of the above vendors would change the vendor mix, but not significantly change our products offered. ​ To provide the franchisees of our Play It Again Sports, Once Upon A Child and Music Go Round systems a source of affordable new product, we have developed relationships with our significant vendors and negotiated prices for our franchisees to take advantage of the buying power a franchise system brings. ​ Our typical Once Upon A Child franchised store purchases approximately 30% of its new product from Rachel’s Ribbons, Wild Side Accessories, Melissa & Doug and Nuby.
The loss of any of the above vendors would change the vendor mix, but not significantly change our products offered. ​ To provide the franchisees of our Play It Again Sports, Once Upon A Child and Music Go Round systems a source of affordable new product, we have developed relationships with our significant vendors and negotiated prices for our franchisees to take advantage of the buying power a franchise system brings. ​ 4 Table of Contents Our typical Once Upon A Child franchised store purchases approximately 30% of its new product from Rachel’s Ribbons, Wild Side Accessories, Melissa & Doug and Nuby.
In addition, franchisees agree that after the end of the term or termination of the franchise agreement, franchisees will not operate any competitive business for a period of two years and within a reasonable geographic area. ​ Although our franchise agreements contain provisions designed to assure the quality of a franchisee’s operations, we have less control over a franchisee’s operations than we would if we owned and operated a retail store.
In addition, franchisees agree that after the end of the term or termination of the franchise agreement, franchisees will not operate any competitive business for a period of two years and within a reasonable geographic area. 5 Table of Contents ​ Although our franchise agreements contain provisions designed to assure the quality of a franchisee’s operations, we have less control over a franchisee’s operations than we would if we owned and operated a retail store.
We have developed specialized computer point-of-sale systems for our brands that provide the franchisee with standardized pricing information to assist in the purchasing of used items. ​ 4 Table of Contents We provide centralized buying services, which on a limited basis include credit and billing for the Play It Again Sports franchisees.
We have developed specialized computer point-of-sale systems for our brands that provide the franchisee with standardized pricing information to assist in the purchasing of used items. ​ We provide centralized buying services, which on a limited basis include credit and billing for the Play It Again Sports franchisees.
Our Play It Again Sports franchise system uses several major vendors for new product including Nautilus, Wilson Sporting Goods, Champro Sports, Rawlings/Easton, CCM Hockey and Bauer Hockey.
Our Play It Again Sports franchise system uses several major vendors for new product including Bowflex, Wilson Sporting Goods, Champro Sports, Rawlings/Easton, CCM Hockey and Bauer Hockey.
We also provide continuing support and service to our franchisees. 3 Table of Contents We have developed value-oriented retail brands based on a mix of gently used and, to a lesser extent, new merchandise. We franchise rights to franchisees who open franchised locations under such brands.
We also provide continuing support and service to our franchisees. ​ We have developed value-oriented retail brands based on a mix of gently used and, to a lesser extent, new merchandise. We franchise rights to franchisees who open franchised locations under such brands.
For over 30 years, we have offered a sustainable solution for consumers to recycle their gently used clothing, toys, sporting goods and musical instruments. We estimate that, since 2010 stores in our resale brands have extended the lives of over one and a half billion items.
For over 30 years, we have offered a sustainable solution for consumers to recycle their gently used clothing, toys, sporting goods and musical instruments. We estimate that, since 2010, stores in our resale brands have extended the lives of over 1.7 billion items.
Once a franchisee opens its initial store, it can open additional stores, in any brand, by paying a $15,000 franchise fee for a store in the U.S. and $19,200CAD for a store in Canada, provided an acceptable territory is available and the franchisee meets the brand’s additional store standards.
Once a franchisee opens its initial store, it can open additional stores, in any brand, by paying a $15,000 franchise fee for a store in the U.S. and $20,500CAD for a store in Canada, provided an acceptable territory is available and the franchisee meets the brand’s additional store standards.
Revenues from Canadian franchisees in 2022, 2021 and 2020 were approximately $6.4 million, $4.9 million and $4.0 million, respectively. For additional financial information, please see Item 8 — Financial Statements and Supplementary Data.
Revenues from Canadian franchisees in 2023, 2022 and 2021 were approximately $6.8 million, $6.4 million and $4.9 million, respectively. For additional financial information, please see Item 8 — Financial Statements and Supplementary Data.
We seek franchisees who: ​ ● have a sufficient net worth; ● have prior business experience; and ● intend to be integrally involved with the management of the business. ​ At December 31, 2022, we had 57 signed franchise agreements, of which the majority are expected to open in 2023. ​ Franchise Support ​ As a franchisor, our success depends upon our ability to develop and support competitive and successful franchise owners.
We seek franchisees who: ​ ● have a sufficient net worth; ● have prior business experience; and ● intend to be integrally involved with the management of the business. ​ At December 30, 2023, we had 71 signed franchise agreements, of which the majority are expected to open in 2024. ​ Franchise Support ​ As a franchisor, our success depends upon our ability to develop and support competitive and successful franchise owners.
Music Go Round franchisees buy, sell and trade gently used and, to a lesser extent, new musical instruments, speakers, amplifiers, music-related electronics and related accessories. ​ The following table presents system-wide sales, which we define as estimated revenues generated by all franchise locations through both in-store and e-commerce sales, for each of the past three years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ System-Wide Sales ​ ​ (in millions) ​ 2020 2021 2022 Plato’s Closet ​ $ 444.1 ​ $ 594.4 ​ $ 638.8 Once Upon A Child ​ 311.5 ​ 420.3 ​ 466.2 Play It Again Sports ​ 250.4 ​ 300.7 ​ 324.1 Style Encore ​ 35.8 ​ 49.4 ​ 58.1 Music Go Round ​ 33.2 ​ 41.8 ​ 47.1 ​ ​ $ 1,075.0 ​ $ 1,406.6 ​ $ 1,534.3 ​ ​ 2 Table of Contents We have developed an e-commerce platform that allows franchisees of our Music Go Round, Play It Again Sports and Style Encore brands to market and sell in-store product inventory online.
Music Go Round franchisees buy, sell and trade gently used and, to a lesser extent, new musical instruments, speakers, amplifiers, music-related electronics and related accessories. ​ The following table presents system-wide sales, which we define as estimated revenues generated by all franchise locations through both in-store and e-commerce sales, for each of the past three years. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ System-Wide Sales ​ ​ (in millions) ​ 2021 2022 2023 Plato’s Closet ​ $ 594.4 ​ $ 638.8 ​ $ 647.6 Once Upon A Child ​ 420.3 ​ 466.2 ​ 504.8 Play It Again Sports ​ 300.7 ​ 324.1 ​ 328.2 Style Encore ​ 49.4 ​ 58.1 ​ 59.2 Music Go Round ​ 41.8 ​ 47.1 ​ 49.2 ​ ​ $ 1,406.6 ​ $ 1,534.3 ​ $ 1,589.0 ​ We have developed an e-commerce platform that allows franchisees of our Music Go Round, Play It Again Sports and Style Encore brands to market and sell in-store product inventory online.
The franchise fee for our initial store and additional store in Canada is based upon the exchange rate applied to the United States franchise fee on the last business day of the preceding fiscal year. The franchise fee in March 2023 for an initial store in Canada will be $34,000CAD, and an additional store in Canada will be $20,500CAD .
The franchise fee for our initial store and additional store in Canada is based upon the exchange rate applied to the United States franchise fee on the last business day of the preceding fiscal year. The franchise fee in March 2024 for an initial store in Canada will be $33,200CAD, and an additional store in Canada will be $20,000CAD .
Our franchise brands offer customers a better way to keep their clothes, sporting goods and music equipment out of landfills and in use for a fuller, longer product lifespan. In 2022 alone, stores across our five resale brands purchased over 178 million items of clothing, toys, books, musical instruments and sports equipment.
Our franchise brands offer customers a better way to keep their clothes, sporting goods and music equipment out of landfills and in use for a fuller, longer product lifespan. In 2023 alone, stores across our five resale brands extended the lives of over 182 million items of clothing, toys, books, musical instruments and sports equipment.
Winmark does not own or operate any corporate stores. ​ Of the 1,295 total franchised stores as of December 31, 2022, 142 were located in Canada. ​ Sustainability ​ As a leader in the circular economy, we have been at the forefront of the sustainability movement for over 30 years.
Winmark does not own or operate any corporate stores. ​ Of the 1,319 total franchised stores as of December 30, 2023, 149 were located in Canada. ​ Sustainability ​ As a leader in the circular economy, we have been at the forefront of the sustainability movement for over 30 years.
As of December 31, 2022, we employed 83 employees. None of these employees are covered by a collective bargaining agreement. Our franchisees are independent business owners, therefore, they and their employees are not included in our employee count and are not employees of Winmark Corporation. 7 Table of Contents ​ Our employees are our most valuable resource.
As of December 30, 2023, we employed 83 employees. None of these employees are covered by a collective bargaining agreement. Our franchisees are independent business owners, therefore, they and their employees are not included in our employee count and are not employees of Winmark Corporation. ​ Our employees are our most valuable resource.
At December 31, 2022, the franchise fee for all brands was $25,000 for an initial store in the U.S. and $32,000CAD for an initial store in Canada.
At December 30, 2023, the franchise fee for all brands was $25,000 for an initial store in the U.S. and $34,000CAD for an initial store in Canada.
At December 31, 2022, there were 1,295 franchises in operation in the United States and Canada and over 2,800 available territories.
At December 30, 2023, there were 1,319 franchises in operation in the United States and Canada and over 2,800 available territories.
Our prospective franchisees frequently evaluate other franchise opportunities before purchasing a franchise from us. We compete with other franchise companies for franchisees based on the following factors, among others: amount of initial investment, franchise fee, royalty rate, profitability, franchisor services and industry.
We compete with other franchise companies for franchisees based on the following factors, among others: amount of initial investment, franchise fee, royalty rate, profitability, franchisor services and industry.
We believe that our franchisees will continue to be able to compete with other retailers based on the strength of our value-oriented brands and the name recognition associated with our service marks. ​ 6 Table of Contents We also face competition in connection with the sale of franchises.
We believe that our franchisees will continue to be able to compete with other retailers based on the strength of our value-oriented brands and the name recognition associated with our service marks. ​ We also face competition in connection with the sale of franchises. Our prospective franchisees frequently evaluate other franchise opportunities before purchasing a franchise from us.
Under current franchise agreements, franchisees of the respective brands are required to pay us weekly continuing fees (royalties) equal to the percentage of gross sales outlined in their Franchise Agreements, generally ranging from 4% to 5% for all of our brands. 5 Table of Contents Each Franchisee is currently required to pay us an annual marketing fee of $1,500, and is required to spend 5% of its gross sales for advertising and promoting its franchised store.
Under current franchise agreements, franchisees of the respective brands are required to pay us weekly continuing fees (royalties) equal to the percentage of gross sales outlined in their Franchise Agreements, generally ranging from 4% to 5% for all of our brands.
W e continue to enhance our franchise model and provide our franchisees with the technology, tools and training to profitably expand their operations and evolve towards being a multi-channel retailer. ​ During 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of our equipment leasing portfolio in our wholly owned subsidiary, Winmark Capital Corporation. ​ Our significant assets are located within the United States, and we generate the majority of revenues from United States operations.
W e continue to enhance our franchise model and provide our franchisees with the technology, tools and training to profitably expand their operations and evolve towards being a multi-channel retailer. ​ Our significant assets are located within the United States, and we generate the majority of revenues from United States operations.
In addition, we believe that among national retail operations our brands provide a unique source of value to consumers by purchasing used merchandise.
By offering a combination of high-quality used and value-priced new merchandise, we benefit from consumer demand for value-oriented retailing. In addition, we believe that among national retail operations our brands provide a unique source of value to consumers by purchasing used merchandise.
We believe that our franchise brands are competitive with other franchises based on the fees we charge, our franchise support services and the performance of our existing franchise brands. ​ Equipment Leasing Operations ​ Our leasing business historically consisted of a small-ticket financing business operated through Wirth Business Credit, Inc., and a middle-market leasing business through Winmark Capital Corporation, both of which are wholly-owned subsidiaries. ​ Our small-ticket financing business was operated from 2004 to 2020.
We believe that our franchise brands are competitive with other franchises based on the fees we charge, our franchise support services and the performance of our existing franchise brands. ​ 6 Table of Contents Equipment Leasing Operations ​ Our leasing operations consist of a middle-market leasing business through Winmark Capital Corporation, which is a wholly-owned subsidiary. ​ Our middle-market leasing business began operations in 2004.
Given this decision, we anticipate that leasing revenues, expenses, contribution and cash flows will continue to decrease throughout the run-off period.
In May 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of this leasing portfolio. Given this decision, we anticipate that leasing revenues, expenses, contribution and cash flows will continue to decrease throughout the run-off period.
Approximately 50% of our overall employee count and approximately 50% of our management team identify as female.
As of December 30, 2023, 55% of our overall employee count and 53% of our management team identify as female.
The key elements of our franchise strategy include: ​ ● franchising the rights to operate retail stores offering value-oriented merchandise; ● attracting new, qualified franchisees; and ● providing initial and continuing support to franchisees.
The key elements of our franchise strategy include: ​ ● franchising the rights to operate retail stores offering value-oriented merchandise; ● attracting new, qualified franchisees; and ● providing initial and continuing support to franchisees. 3 Table of Contents Offering Value-Oriented Merchandise ​ Our retail brands provide value to consumers by purchasing and reselling gently used merchandise that consumers have outgrown or no longer use at substantial savings from the price of new merchandise.
Plato’s Closet franchisees buy and sell gently used clothing and accessories geared toward the teenage and young adult market.
We were incorporated in Minnesota in 1988. ​ 1 Table of Contents Operations ​ We currently franchise five brands: ​ Plato’s Closet ​ We began franchising the Plato’s Closet brand in 1999. Plato’s Closet franchisees buy and sell gently used clothing and accessories geared toward the teenage and young adult market.
Also, our franchisees increasingly compete with online used and new goods marketplaces such as eBay, craigslist, facebook Marketplace, Poshmark, thredUP, Amazon and many others. ​ Our Plato’s Closet franchise stores primarily compete with specialty apparel stores such as American Eagle, Gap, Abercrombie & Fitch, Old Navy, Hollister and Forever 21.
These have been done on their own or in connection with a technology partner. ​ Our Plato’s Closet franchise stores primarily compete with specialty apparel stores such as American Eagle, Gap, Abercrombie & Fitch, Old Navy, Hollister and Forever 21.
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We were incorporated in Minnesota in 1988. ​ 1 Table of Contents COVID-19 ​ COVID-19 has had an unprecedented impact on the retail industry in general, and our franchised retail stores have experienced the resulting imposition of temporary store closures to in-store consumer activities, reduced customer traffic, implementation of new cleaning and safety standards, and pivoting to find new ways to help consumers buy and sell merchandise in our concepts.
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Each Franchisee is currently required to pay us an annual marketing fee of $1,500, and is required to spend 5% of its gross sales for advertising and promoting its franchised store.
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As a result, our system-wide sales and royalty revenues were impacted, most notably in 2020, as reflected in the tables below. ​ For further information about COVID-19’s impact to our business, see Part I, Item 1A “Risk Factors.” ​ Operations ​ Our retail brands are summarized as follows: ​ Plato’s Closet ​ We began franchising the Plato’s Closet brand in 1999.
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Also, our franchisees increasingly compete with online used and new goods marketplaces such as eBay, craigslist, facebook Marketplace, Poshmark, thredUP, Amazon and many others. More recently, retail and consumer apparel brands themselves have been participating (mostly through e-commerce) in developing platforms to sell previously used items.
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(See Note 5 – “Intangible Assets”). (2) All stores are owned and operated by franchisees.
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Offering Value-Oriented Merchandise ​ Our retail brands provide value to consumers by purchasing and reselling gently used merchandise that consumers have outgrown or no longer use at substantial savings from the price of new merchandise. By offering a combination of high-quality used and value-priced new merchandise, we benefit from consumer demand for value-oriented retailing.
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In August 2020, we made the decision to no longer originate financing transactions in this business, and we sold the remaining small-ticket portfolio at the end of November 2020 for its approximate carrying value of $0.7 million.
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The operations of this business were not material to the financial results of our leasing segment during the past three years. ​ Our middle-market leasing business began operations in 2004. In May 2021, we made the decision to no longer solicit new leasing customers and pursue an orderly run-off of this leasing portfolio.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf unauthorized parties gain physical access to one of our facilities or electronic access to our information systems or such information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business. ​ 10 Table of Contents ITEM 1B: UNRESOLVED STAFF COMMENTS ​ None. ​
Biggest changeIf unauthorized parties gain physical access to one of our facilities or electronic access to our information systems or such information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could have a material adverse effect on our business. ​ Our stock price will fluctuate, and at times these fluctuations may be volatile. ​ The prices of markets and individual equities tend to fluctuate.
To the extent that we make additional investments that are not successful, such investments could have a material adverse impact on our financial results. ​ We may sell franchises for a territory, but the franchisee may not open. ​ We believe that a substantial majority of franchises awarded but not opened will open within the time period permitted by the applicable franchise agreement or we will be able to resell the territories for most of the terminated or expired franchises.
To the extent that we make additional investments that are not successful, such investments could have a material adverse impact on our financial results. ​ 8 Table of Contents We may sell franchises for a territory, but the franchisee may not open. ​ We believe that a substantial majority of franchises awarded but not opened will open within the time period permitted by the applicable franchise agreement or we will be able to resell the territories for most of the terminated or expired franchises.
Any such acceleration of indebtedness would have an adverse impact on our business activities and financial condition. ​ Sustained credit market deterioration could jeopardize the counterparty obligations of the bank participating in our line of credit facility, which could have an adverse impact on our business if we are not able to replace such credit facility or find other sources of liquidity on acceptable terms. ​ We have indebtedness.
Any such acceleration of indebtedness would have an adverse impact on our business activities and financial condition. ​ Sustained credit market deterioration could jeopardize the counterparty obligations of the bank participating in our line of credit facility, which could have an adverse impact on our business if we are not able to replace such credit facility or find other sources of liquidity on acceptable terms. ​ 9 Table of Contents ​ We have indebtedness.
To the extent any pandemic, epidemic or other public health emergency adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report. ​ 8 Table of Contents We are dependent on franchise renewals. ​ Each of our franchise agreements is 10 years long.
To the extent any pandemic, epidemic or other public health emergency adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report. ​ We are dependent on franchise renewals. ​ Each of our franchise agreements is 10 years long.
As of December 31, 2022, we were in compliance with all of our financial covenants under these facilities; however, failure to comply with these covenants in the future may result in default under one or both of these sources of capital and could result in acceleration of the related indebtedness.
As of December 30, 2023, we were in compliance with all of our financial covenants under these facilities; however, failure to comply with these covenants in the future may result in default under one or both of these sources of capital and could result in acceleration of the related indebtedness.
ITEM 1A: RISK FACTORS ​ Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19. ​ Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19 which spread from China to many other countries including the United States and Canada.
ITEM 1A: RISK FACTORS ​ Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19. ​ Our business, results of operations, financial condition, cash flows and the market value of our common stock can be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID-19.
As of December 31, 2022 each of our five brands have the following number of franchise agreements that will expire over the next three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2024 2025 Plato’s Closet 66 57 21 ​ Once Upon A Child 54 51 44 ​ Play It Again Sports 35 23 45 ​ Music Go Round 6 2 4 ​ Style Encore 19 15 8 ​ ​ 180 148 122 ​ ​ We believe that renewing a significant number of these franchise relationships is important to our continued success.
As of December 30, 2023 each of our five brands have the following number of franchise agreements that will expire over the next three years: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2025 2026 Plato’s Closet 56 44 40 ​ Once Upon A Child 51 44 50 ​ Play It Again Sports 22 20 14 ​ Music Go Round 2 4 6 ​ Style Encore 15 8 6 ​ ​ 146 120 116 ​ ​ We believe that renewing a significant number of these franchise relationships is important to our continued success.
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In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.
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We may face additional competition as our franchise systems expand and if additional competitors enter the used merchandise market. ​ We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation, the loss of such assets would have a severe negative affect on our operations and liquidity. ​ We may maintain our cash assets at certain financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000.
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The outbreak resulted in federal, state, provincial and local governments throughout the United States and Canada implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures.
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In the event of a failure of any financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect upon our liquidity, financial condition and our results of operations. ​ We are subject to restrictions in our line of credit/term loan and note facilities.
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In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. ​ The outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities had a material adverse effect on our operations and those of our franchisees, including forced or voluntary store closures, business shutdowns or disruptions during the height of the pandemic.
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These fluctuations commonly reflect events, many of which may be fully or partially outside of our control, that may change investor's perception of our future earnings growth prospects, including changes in economic conditions, ability to execute business strategy, the impacts of public policy, investor sentiment, competitive dynamics, and many other factors.
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We may face additional competition as our franchise systems expand and if additional competitors enter the used merchandise market. 9 Table of Contents We are subject to restrictions in our line of credit/term loan and note facilities.
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While the sources of stock price fluctuation can be common across companies, the magnitude of these fluctuations can vary for different companies. ​ 10 Table of Contents ​ ITEM 1B: UNRESOLVED STAFF COMMENTS ​ None. ​

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur facilities are sufficient to meet our current and immediate future needs. ​ ITEM 3: LEGAL PROCEEDINGS ​ We are not a party to any material litigation and are not aware of any threatened litigation that would have a material adverse effect on our business. ​ ITEM 4: MINE SAFETY DISCLOSURES ​ Not applicable. ​ PART II ​
Biggest changeOur facilities are sufficient to meet our current and immediate future needs. ​ ITEM 3: LEGAL PROCEEDINGS ​ We are not a party to any material litigation and are not aware of any threatened litigation that would have a material adverse effect on our business. ​ ITEM 4: MINE SAFETY DISCLOSURES ​ Not applicable. ​ 11 Table of Contents PART II ​
ITEM 2: PROPERTIES ​ We lease 41,016 square feet at our headquarters facility in Minneapolis, Minnesota. We are obligated to pay rent monthly under the lease, and will pay an average of $829,500 annually over the remaining term that expires in 2029.
ITEM 2: PROPERTIES ​ We lease 41,016 square feet at our headquarters facility in Minneapolis, Minnesota. We are obligated to pay rent monthly under the lease, and will pay an average of $840,500 annually over the remaining term that expires in 2029.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe total shares approved for repurchase has been increased by additional Board of Directors’ approvals and as of December 31, 2022 was limited to 5,400,000 shares, of which 78,600 may still be repurchased. ​ ITEM 6: [RESERVED] ​ None. ​ ​ 11 Table of Contents
Biggest changeThe total shares approved for repurchase has been increased by additional Board of Directors’ approvals and as of December 30, 2023 was limited to 5,400,000 shares, of which 78,600 may still be repurchased. ​ The table set forth in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matter” of this Annual Report is also incorporated herein by reference. ​ Performance Graph ​ In accordance with the rules of the SEC, the following graph compares the performance of our common stock on the NASDAQ stock market to the NASDAQ US Benchmark TR composite index and to the NASDAQ US Benchmark Retail TR industry index, of which we are a component.
For dividend information see Note 6 – “Shareholders’ Equity (Deficit).” ​ At March 6, 2023, there were approximately 52 shareholders of record of our common stock. ​ Purchases of Equity Securities by the Issuer and Affiliated Purchasers ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Maximum Number ​ ​ ​ ​ ​ ​ ​ ​ Shares Purchased as ​ of Shares that may ​ ​ Total Number of ​ Average Price ​ Part of a Publicly ​ yet be Purchased Period Shares Purchased Paid Per Share Announced Plan(1) Under the Plan ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 25, 2022 to October 29, 2022 3,858 ​ $ 217.36 3,858 78,600 ​ October 30, 2022 to November 26, 2022 — ​ $ — — 78,600 ​ November 27, 2022 to December 31, 2022 — ​ $ — — 78,600 ​ (1) The Board of Directors’ authorization for the repurchase of shares of the Company’s common stock was originally approved in 1995 with no expiration date.
For dividend information see Note 6 – “Shareholders’ Equity (Deficit).” ​ At February 26, 2024, there were approximately 52 shareholders of record of our common stock. ​ Purchases of Equity Securities by the Issuer and Affiliated Purchasers ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Maximum Number ​ ​ ​ ​ ​ ​ ​ ​ Shares Purchased as ​ of Shares that may ​ ​ Total Number of ​ Average Price ​ Part of a Publicly ​ yet be Purchased Period Shares Purchased Paid Per Share Announced Plan(1) Under the Plan ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October 1, 2023 to November 4, 2023 — ​ $ — — 78,600 ​ November 5, 2023 to December 2, 2023 — ​ $ — — 78,600 ​ December 3, 2023 to December 30, 2023 — ​ $ — — 78,600 ​ (1) The Board of Directors’ authorization for the repurchase of shares of the Company’s common stock was originally approved in 1995 with no expiration date.
Added
The graph compares on an annual basis the cumulative total shareholder return on $100 invested on December 29, 2018 though our fiscal year ended December 30, 2023 and assumes reinvestment of all dividends. The performance graph is not necessarily indicative of future investment performance. 12 Table of Contents ITEM 6: [RESERVED] ​ None. ​ ​

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 11 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 17 ​ ​ ​
Biggest changeItem 6. [Reserved] 13 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18 ​ ​ ​ Item 8. Financial Statements and Supplementary Data 18 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSee Note 3 – “Investment in Leasing Operations” for information regarding the lease portfolio, including future minimum lease payments receivable under lease contracts and the amortization of unearned lease income. ​ Results of Operations ​ The following table sets forth selected information from our Consolidated Statements of Operations expressed as a percentage of total revenue and the percentage change in the dollar amounts from the prior period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended Fiscal 2022 ​ ​ December 31, ​ December 25, ​ over (under) ​ ​ 2022 2021 2021 Revenue: ​ ​ ​ ​ ​ ​ ​ Royalties 82.5 % 77.7 % 10.5 % Leasing income 8.5 ​ 14.2 ​ (37.8) ​ Merchandise sales 4.8 ​ 4.0 ​ 26.5 ​ Franchise fees 1.9 ​ 1.9 ​ 5.2 ​ Other 2.3 ​ 2.2 ​ 8.1 ​ Total revenue 100.0 ​ 100.0 ​ 4.1 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cost of merchandise sold (4.6) ​ (3.8) ​ 26.3 ​ Leasing expense (1.2) ​ (2.4) ​ (46.8) ​ Provision for credit losses 0.1 ​ 0.3 ​ 72.0 ​ Selling, general and administrative expenses (28.4) ​ (28.5) ​ 3.9 ​ Income from operations 65.9 ​ 65.6 ​ 4.4 ​ Interest expense (3.6) ​ (1.9) ​ 100.5 ​ Interest and other income (expense) 0.1 ​ — ​ (670.7) ​ Income before income taxes 62.4 ​ 63.7 ​ 1.8 ​ Provision for income taxes (14.0) ​ (12.7) ​ 14.2 ​ Net income 48.4 % 51.0 % (1.2) % ​ Revenue ​ Revenues for the year ended December 31, 2022 totaled $81.4 million compared to $78.2 million in 2021. ​ Royalties and Franchise Fees ​ Royalties increased to $67.1 million for 2022 from $60.8 million for the same period in 2021, a 10.5% increase.
Biggest changeSee Note 3 – “Investment in Leasing Operations” for information regarding the lease portfolio, including future minimum lease payments receivable under lease contracts and the amortization of unearned lease income. ​ Results of Operations ​ The following table sets forth selected information from our Consolidated Statements of Operations expressed as a percentage of total revenue and the percentage change in the dollar amounts from the prior period: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Year Ended Fiscal 2023 ​ ​ December 30, ​ December 31, ​ over (under) ​ ​ 2023 2022 2022 Revenue: ​ ​ ​ ​ ​ ​ Royalties 84.4 % 82.5 % 4.6 % Leasing income 5.7 ​ 8.5 ​ (31.3) ​ Merchandise sales 5.7 ​ 4.8 ​ 21.4 ​ Franchise fees 1.8 ​ 1.9 ​ (4.0) ​ Other 2.4 ​ 2.3 ​ 8.0 ​ Total revenue 100.0 ​ 100.0 ​ 2.3 ​ ​ ​ ​ ​ ​ ​ ​ Cost of merchandise sold (5.3) ​ (4.6) ​ 20.2 ​ Leasing expense (0.5) ​ (1.2) ​ (59.5) ​ Provision for credit losses - ​ 0.1 ​ (90.3) ​ Selling, general and administrative expenses (30.2) ​ (28.4) ​ 8.4 ​ Income from operations 64.0 ​ 65.9 ​ (0.6) ​ Interest expense (3.7) ​ (3.6) ​ 6.0 ​ Interest and other income 1.4 ​ 0.1 ​ 1,269.3 ​ Income before income taxes 61.7 ​ 62.4 ​ 1.1 ​ Provision for income taxes (13.4) ​ (14.0) ​ (1.5) ​ Net income 48.3 % 48.4 % 1.9 % ​ Revenue ​ Revenues for the year ended December 30, 2023 totaled $83.2 million compared to $81.4 million in 2022. ​ Royalties and Franchise Fees ​ Royalties increased to $70.2 million for 2023 from $67.1 million for the same period in 2022, a 4.6% increase.
Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital. ​ As of the date of this report we believe that the combination of our cash on hand, the cash generated from our franchising and leasing businesses, our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2023. ​ Critical Accounting Policies ​ The Company prepares the consolidated financial statements of Winmark Corporation and Subsidiaries in conformity with accounting principles generally accepted in the United States of America.
Also, our ability to carry out any of these activities on favorable terms, if at all, may be further impacted by any financial or credit crisis which may limit access to the credit markets and increase our cost of capital. ​ As of the date of this report we believe that the combination of our cash on hand, the cash generated from our franchising and leasing businesses, our Line of Credit and our Shelf Agreement will be adequate to fund our planned operations through 2024. ​ Critical Accounting Policies ​ The Company prepares the consolidated financial statements of Winmark Corporation and Subsidiaries in conformity with accounting principles generally accepted in the United States of America.
Discussions of 2020 items and year-to-date comparisons between 2021 and 2020 that are not included in this Form 10-K, can be found in ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021. ​ Overview ​ Winmark – the Resale Company is focused on sustainability and small business formation.
Discussions of 2021 items and year-to-date comparisons between 2022 and 2021 that are not included in this Form 10-K, can be found in ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. ​ Overview ​ Winmark – the Resale Company is focused on sustainability and small business formation.
(3) Refer to Part II, Item 8 in this report under Note 7 — “Debt” for additional information regarding long-term debt. ​ ​ 15 Table of Contents Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential.
(3) Refer to Part II, Item 8 in this report under Note 7 — “Debt” for additional information regarding long-term debt. ​ Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement and Shelf Agreement with Prudential.
(See Note 6 — “Shareholders’ Equity (Deficit)” and Note 7 — “Debt”). ​ We have debt obligations and future operating lease commitments for our corporate headquarters. As of December 31, 2022 , we had no other material outstanding commitments. (See Note 1 2 — “Commitments and Contingencies”).
(See Note 6 — “Shareholders’ Equity (Deficit)” and Note 7 — “Debt”). ​ We have debt obligations and future operating lease commitments for our corporate headquarters. As of December 30, 2023 , we had no other material outstanding commitments. (See Note 1 2 — “Commitments and Contingencies”).
The increase is primarily due to higher franchisee retail sales and from having additional franchise stores in 2022 compared to 2021. Fiscal 2022 was a 53-week year compared to a 52-week year in fiscal 2021, which also contributed to the increase in royalty revenue. ​ Franchise fees of $1.6 million for 2022 were comparable to $1.5 million for 2021.
The increase is primarily due to higher franchisee retail sales and from having additional franchise stores in 2023 compared to 2022. Fiscal 2023 was a 52-week year compared to a 53-week year in fiscal 2022, which also impacted the comparability of royalty revenue. ​ Franchise fees of $1.5 million for 2023 were comparable to $1.6 million for 2022.
Of the $43.4 million of principal outstanding under the Note Agreement, $13.4 million amortizes over 2023 through 2027, and $30.0 million matures in 2028. ​ See Part II, Item 8, Note 7 – “Debt” for more information regarding the Line of Credit, Note Agreement and Shelf Agreement. ​ We expect to generate the cash necessary to pay our expenses and to pay the principal and interest on our outstanding debt from cash flows provided by operating activities and by opportunistically using other means to repay or refinance our obligations as we determine appropriate.
Of the $39.2 million of principal outstanding under the Note Agreement, $9.2 million amortizes over 2024 through 2027, and $30.0 million matures in 2028. ​ See Part II, Item 8, Note 7 – “Debt” for more information regarding the Line of Credit, Note Agreement and Shelf Agreement. ​ We expect to generate the cash necessary to pay our expenses and to pay the principal and interest on our outstanding debt from cash flows provided by operating activities and by opportunistically using other means to repay or refinance our obligations as we determine appropriate.
As of December 31, 2022, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029. ​ The Shelf Agreement allows us to offer privately negotiated senior notes to Prudential in an aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the Note Agreement, which at December 31, 2022 was $43.4 million).
As of December 30, 2023, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029. ​ The Shelf Agreement allows us to offer privately negotiated senior notes to Prudential in an aggregate principal amount up to (i) $100.0 million, less (ii) the aggregate principal amount of notes outstanding at such point (including notes outstanding under the Note Agreement, which at December 30, 2023 was $39.2 million).
This section of this 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Direct Franchisee Sales increased to $3.9 million in 2022 from $3.1 million in 2021 . The increase is due to an increase in technology and buying group purchases by our franchisees. ​ Cost of Merchandise Sold ​ Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales.
Direct Franchisee Sales increased to $4.8 million in 2023 from $3.9 million in 2022 . The increase is due to an increase in technology and buying group purchases by our franchisees. ​ Cost of Merchandise Sold ​ Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales.
A detailed description of the risks to our business along with other risk factors can be found in Item 1A “Risk Factors”. ​ In May 2021, we made the decision to no longer solicit new leasing customers and will pursue an orderly run-off of our middle-market leasing portfolio, the operations of which constitute our leasing segment.
A detailed description of the risks to our business along with other risk factors can be found in Item 1A “Risk Factors”. ​ 13 Table of Contents In May 2021, we made the decision to no longer solicit new leasing customers and will pursue an orderly run-off of our middle-market leasing portfolio.
During 2022, our royalties increased $6.4 million or 10.5% compared to 2021. ​ Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries, wages and benefits, advertising, travel, occupancy, legal and professional fees.
During 2023, our royalties increased $3.1 million or 4.6% compared to 2022. ​ Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include salaries, wages and benefits, advertising, travel, occupancy, legal and professional fees.
As of December 31, 2022, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement. ​ The Line of Credit provides for up to $20.0 million in revolving loans and $30.0 million in delayed draw term loans.
As of December 30, 2023, we were in compliance with all of the financial covenants under the Line of Credit, the Note Agreement and the Shelf Agreement. ​ 16 Table of Contents The Line of Credit provides for up to $20.0 million in revolving loans and $30.0 million in delayed draw term loans.
Cost of merchandise sold as a percentage of Direct Franchisee Sales for 2022 and 2021 was 94.7% and 94.9%, respectively. ​ Leasing Expense ​ Leasing expense decreased to $1.0 million in 2022 compared to $1.9 million in 2021.
Cost of merchandise sold as a percentage of Direct Franchisee Sales for 2023 and 2022 was 93.7% and 94.7%, respectively. ​ Leasing Expense ​ Leasing expense decreased to $0.4 million in 2023 compared to $1.0 million in 2022.
During 2022, selling, general and administrative expense increased $0.9 million, or 3.9%, compared to the same period last year. ​ Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals.
During 2023, selling, general and administrative expense increased $2.0 million, or 8.4%, compared to the same period last year. ​ Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals.
The increase is primarily due to higher average corporate borrowings when compared to last year. ​ Income Taxes ​ The provision for income taxes was calculated at an effective rate of 22.4% and 19.9% for 2022 and 2021, respectively.
The increase is primarily due to higher average corporate borrowings when compared to last year. ​ Income Taxes ​ The provision for income taxes was calculated at an effective rate of 21.8% and 22.4% for 2023 and 2022, respectively.
The components of the Consolidated Statements of Operations that reduce our net income but do not affect our liquidity include non-cash items for depreciation and amortization and compensation expense related to stock options. ​ We ended 2022 with $13.7 million in cash, cash equivalents and restricted cash compared to $11.4 million in cash, cash equivalents and restricted cash at the end of 2021. ​ Operating activities provided $43.8 million of cash during 2022 compared to $48.3 million provided during 2021.
The components of the Consolidated Statements of Operations that reduce our net income but do not affect our liquidity include non-cash items for depreciation and amortization and compensation expense related to stock options. ​ We ended 2023 with $13.4 million in cash, cash equivalents and restricted cash compared to $13.7 million in cash, cash equivalents and restricted cash at the end of 2022. ​ Operating activities provided $44.0 million of cash during 2023 compared to $43.8 million provided during 2022. ​ Investing activities used $0.4 million of cash during 2023 compared to $3.7 million used during 2022. ​ Financing activities used $43.9 million of cash during 2023 compared to $37.9 million used during 2022.
The leasing segment includes our equipment leasing business. Segment reporting is intended to give financial statement users a better view of how we manage and evaluate our businesses. Our internal management reporting is the basis for the information disclosed for our business segments and includes allocation of shared-service costs.
The non-reportable operating segment includes our equipment leasing business. Segment reporting is intended to give financial statement users a better view of how we manage and evaluate our businesses. Our internal management reporting is the basis for the information disclosed for our operating segments.
As of December 31, 2022, we had 1,295 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands.
As of December 30, 2023, we had 1,319 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands.
Cost of merchandise sold increased to $3.7 million in 2022 from $2.9 million in 2021. The increase was due to an increase in Direct Franchisee Sales discussed above.
Cost of merchandise sold increased to $4.5 million in 2023 from $3.7 million in 2022. The increase was due to an increase in Direct Franchisee Sales discussed above.
Leasing income net of leasing 12 Table of Contents expense for the fiscal year of 2022 was $6.0 million compared to $9.3 million in 2021. Our leasing portfolio (net investment in leases – current and long-term), was $0.3 million at December 31, 2022 compared to $3.1 million at December 25, 2021.
Leasing income net of leasing expense for the fiscal year of 2023 was $4.4 million compared to $6.0 million in 2022. Our leasing portfolio (net investment in leases – current and long-term), was $0.1 million at December 30, 2023 compared to $0.3 million at December 31, 2022.
As of December 31, 2022, we had not issued any notes under the Shelf Agreement.
As of December 30, 2023, we had not issued any notes under the Shelf Agreement.
The increase in segment contribution was primarily due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses. ​ Leasing Segment Operating Income ​ The leasing segment’s operating income for 2022 decreased by $1.9 million, or 29.2%, to $4.6 million from $6.5 million for 2021.
The increase in segment contribution was primarily due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses. ​ Other Segment Operating Income ​ The other segment operating income for 2023 decreased by $0.7 million, or 15.2%, to $3.9 million from $4.6 million for 2022.
The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options. ​ Segment Comparison of Fiscal Years 2022 and 2021 ​ As of December 31, 2022, we have two reportable business segments, franchising and leasing. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise.
The decrease is primarily due to higher tax benefits on the exercise of non-qualified stock options. ​ Segment Comparison of Fiscal Years 2023 and 2022 ​ As of December 30, 2023, we have one reportable operating segment, franchising, and one non-reportable operating segment. The franchising segment franchises value-oriented retail store concepts that buy, sell and trade merchandise.
The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2022 December 25, 2021 Revenue: ​ ​ ​ ​ ​ ​ ​ Franchising ​ $ 74,473,100 ​ $ 67,067,900 ​ Leasing ​ 6,937,700 ​ 11,148,300 ​ Total revenue ​ $ 81,410,800 ​ $ 78,216,200 ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation to income from operations: ​ ​ ​ ​ ​ ​ ​ Franchising segment contribution ​ $ 49,007,900 ​ $ 44,832,100 ​ Leasing segment contribution ​ 4,604,900 ​ 6,504,100 ​ Total income from operations ​ $ 53,612,800 ​ $ 51,336,200 ​ ​ Revenues are all generated from United States operations other than franchising revenue from Canadian operations of $6.4 million and $4.9 million in each of fiscal 2022 and 2021, respectively. ​ 14 Table of Contents Franchising Segment Operating Income ​ The franchising segment’s 2022 operating income increased by $4.2 million, or 9.3%, to $49.0 million from $44.8 million for 2021.
The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 30, 2023 December 31, 2022 Revenue: ​ ​ ​ ​ ​ ​ ​ Franchising ​ $ 78,477,300 ​ $ 74,473,100 ​ Other ​ 4,766,200 ​ 6,937,700 ​ Total revenue ​ $ 83,243,500 ​ $ 81,410,800 ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation to income from operations: ​ ​ ​ ​ ​ ​ ​ Franchising segment contribution ​ $ 49,375,900 ​ $ 49,007,900 ​ Other operating segment contribution ​ 3,904,700 ​ 4,604,900 ​ Total income from operations ​ $ 53,280,600 ​ $ 53,612,800 ​ ​ Revenues are all generated from United States operations other than franchising revenue from Canadian operations of $6.8 million and $6.4 million in each of fiscal 2023 and 2022, respectively. ​ 15 Table of Contents Franchising Segment Operating Income ​ The franchising segment’s 2023 operating income increased by $0.4 million, or 0.8%, to $49.4 million from $49.0 million for 2022.
The decrease is primarily due to lower levels of equipment sales to customers and lower levels of interest income from the smaller lease portfolio when compared to last year. ​ ​ ​ ​ ​ ​ ​ 13 Table of Contents ​ Merchandise Sales ​ Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”).
The decrease is primarily due to a decrease in selling profit on the commencement of sales type leases and lower levels of equipment sales to customers, partially offset by an increase in operating lease income when compared to last year. ​ 14 Table of Contents ​ Merchandise Sales ​ Merchandise sales include the sale of product to franchisees either through our Computer Support Center or through the Play It Again Sports buying group (together, “Direct Franchisee Sales”).
Franchise fees include initial franchise fees from the sale of new franchises and transfer fees related to the transfer of existing franchises. Franchise fee revenue is recognized over the estimated life of the franchise, beginning when the franchise opens.
Franchise fees include initial franchise fees from the sale of new franchises and transfer fees related to the transfer of existing franchises. Franchise fee revenue is recognized over the estimated life of the franchise, beginning when the franchise opens. An overview of retail brand franchise fees is presented in the Operations subsection of the Business section (Item 1).
The decrease was primarily due to a decrease in the associated cost of equipment sales to customers noted above. ​ Selling, General and Administrative Expenses ​ Selling, general and administrative expenses increased 3.9% to $23.2 million in 2022 from $22.3 million in 2021. The increase was primarily due to an increase in advertising and promotional expenses and travel related expenses.
The decrease was primarily due to a decrease in depreciation on operating leases and a decrease in the associated cost of equipment sales to customers noted above. ​ Selling, General and Administrative Expenses ​ Selling, general and administrative expenses increased 8.4% to $25.1 million in 2023 from $23.2 million in 2022.
As of December 31, 2022, the Company’s royalty receivable was $1,216,600. ​ The Company collects initial franchise fees when franchise agreements are signed and recognizes the initial franchise fees as revenue over the estimated life of the franchise, beginning when the franchise is opened.
At the end of each accounting period, royalty amounts due are based on franchisee sales information. As of December 30, 2023, the Company’s royalty receivable was $1,110,500. ​ The Company collects initial franchise fees when franchise agreements are signed and recognizes the initial franchise fees as revenue over the estimated life of the franchise, beginning when the franchise is opened.
The following is a summary of our net store growth and renewal activity for the fiscal year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AVAILABLE ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ ​ ​ TOTAL ​ FOR ​ COMPLETED ​ ​ ​ 12/25/2021 ​ OPENED ​ CLOSED ​ 12/31/2022 RENEWAL ​ RENEWALS ​ % RENEWED ​ Plato’s Closet 489 14 (3) 500 55 55 100 % Once Upon A Child 401 8 (3) 406 32 ​ 32 100 % Play It Again Sports 273 16 (1) (8) 281 57 ​ 57 100 % Style Encore 71 4 (4) 71 — — N/A ​ Music Go Round 37 — — 37 — — N/A ​ Total Franchised Stores (2) 1,271 42 (18) 1,295 144 144 100 % ​ (1) Includes 11 stores formerly operated outside the Winmark franchise system.
The following is a summary of our net store growth and renewal activity for the fiscal year ended December 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AVAILABLE ​ ​ ​ ​ ​ ​ ​ TOTAL ​ ​ ​ ​ ​ TOTAL ​ FOR ​ COMPLETED ​ ​ ​ 12/31/2022 ​ OPENED ​ CLOSED ​ 12/30/2023 RENEWAL ​ RENEWALS ​ % RENEWED ​ Plato’s Closet 500 11 (5) 506 65 65 100 % Once Upon A Child 406 11 (1) 416 54 ​ 54 100 % Play It Again Sports 281 17 (4) 294 34 ​ 34 100 % Style Encore 71 — (5) 66 18 17 94 % Music Go Round 37 — — 37 6 6 100 % Total Franchised Stores (1) 1,295 39 (15) 1,319 177 176 99 % ​ (1) All stores are owned and operated by franchisees.
The following table summarizes our significant future contractual obligations at December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments due by period ​ ​ ​ ​ ​ Less than 1 ​ ​ ​ ​ ​ ​ ​ More than 5 ​ ​ Total year 1-3 years 3-5 years years Contractual Obligations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Line of Credit/Term loan (1)(3) ​ $ 38,768,400 ​ $ 1,395,500 ​ $ 2,791,000 ​ $ 2,791,000 ​ $ 31,790,900 ​ Notes Payable (2)(3) ​ 50,247,200 ​ ​ 5,833,500 ​ ​ 9,491,100 ​ ​ 4,207,100 ​ ​ 30,715,500 ​ Operating Lease Obligations ​ 5,806,200 ​ ​ 763,300 ​ ​ 1,590,300 ​ ​ 1,679,300 ​ ​ 1,773,300 ​ Total Contractual Obligations ​ $ 94,821,800 ​ $ 7,992,300 ​ $ 13,872,400 ​ $ 8,677,400 ​ $ 64,279,700 ​ (1) Includes interest payable monthly at rates ranging from 4.60% to 4.75%.
The following table summarizes our significant future contractual obligations at December 30, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments due by period ​ ​ ​ ​ ​ Less than 1 ​ ​ ​ ​ ​ ​ ​ More than 5 ​ ​ Total year 1-3 years 3-5 years years Contractual Obligations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Line of Credit/Term loan (1)(3) ​ $ 37,372,900 ​ $ 1,395,500 ​ $ 2,791,000 ​ $ 2,791,000 ​ $ 30,395,400 ​ Notes Payable (2)(3) ​ 44,413,700 ​ ​ 5,604,800 ​ ​ 6,178,000 ​ ​ 32,630,900 ​ ​ — ​ Operating Lease Obligations ​ 5,042,900 ​ ​ 784,400 ​ ​ 1,634,200 ​ ​ 1,725,700 ​ ​ 898,600 ​ Total Contractual Obligations ​ $ 86,829,500 ​ $ 7,784,700 ​ $ 10,603,200 ​ $ 37,147,600 ​ $ 31,294,000 ​ (1) Includes interest payable monthly at rates ranging from 4.60% to 4.75%.
During 2022, we used $49.1 million to purchase 226,165 shares of our common stock, paid $19.3 million in cash dividends (including a $3.00 per share special cash dividend; the “2022 Special Dividend”), and paid $4.3 million on notes payable; partially offset by net borrowings on our line of credit/term loan of $30.0 million and $4.8 million of proceeds from the exercise of stock options.
During 2023, we paid $43.7 million in cash dividends (including a $9.40 per share special cash dividend; the “2023 Special Dividend”), and paid $4.3 million on notes payable; partially offset by $4.0 million of proceeds from the exercise of stock options.
The renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties. In 2022, we renewed 100% of franchise agreements up for renewal.
Winmark does not own or operate any corporate stores. ​ Renewal activity is a key focus area for management. Our franchisees sign 10-year agreements with us. The renewal of existing franchise agreements as they approach their expiration is an indicator that management monitors to determine the health of our business and the preservation of future royalties.
Franchise fees collected from franchisees but not yet recognized as income are recorded as deferred revenue in the liability section of the consolidated balance sheet. As of December 31, 2022, deferred franchise fee revenue was $6,667,900. ​ 16 Table of Contents Leasing Income Recognition ​ Leasing income for direct financing leases is recognized under the effective interest method.
Franchise fees collected from franchisees but not yet recognized as income are recorded as deferred revenue in the liability section of the consolidated balance sheet. As of December 30, 2023, deferred franchise fee revenue was $7,088,700. ​ Recent Accounting Pronouncements ​ See Note 2, “Significant Accounting Policies — Recently Issued Accounting Pronouncements”. ​ 17 Table of Contents
An overview of retail brand franchise fees is presented in the Operations subsection of the Business section (Item 1). ​ Leasing Income ​ Leasing income decreased to $6.9 million in 2022 compared to $11.1 million for the same period in 2021.
Leasing Income ​ Leasing income decreased to $4.8 million in 2023 compared to $6.9 million for the same period in 2022.
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(See Note 5 – “Intangible Assets”). (2) All stores are owned and operated by franchisees. Winmark does not own or operate any corporate stores. ​ Renewal activity is a key focus area for management. Our franchisees sign 10-year agreements with us.
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In 2023, we renewed 99% of franchise agreements up for renewal.
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Fiscal 2022 was a 53-week year compared to a 52-week year in fiscal 2021, which also contributed to an increase in salaries, wages and benefit expense. ​ Interest Expense ​ Interest expense was $2.9 million in 2022 compared to $1.5 million in 2021.
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The increase was primarily due to an increase in conference expenses, as we returned to holding an in-person conference for our apparel brands for the first time since the Covid-19 outbreak, advertising related expenses, outside services and amortization expense. ​ Interest Expense ​ Interest expense was $3.1 million in 2023 compared to $2.9 million in 2022.
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The decrease in cash provided by operating activities in 2022 compared to 2021 was primarily due to a decrease in principal collections on lease receivables. ​ Investing activities used $3.7 million of cash during 2022 compared to $0.3 million used during 2021.
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Our most significant investing activities consisted of reacquired franchise rights (See Note 5 – “Intangible Assets”). ​ Financing activities used $37.9 million of cash during 2022 compared to $43.3 million used during 2021.
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At the end of each accounting period, estimates of royalty amounts due are made based on the most recent franchisee sales information available. If there are significant changes in the actual performance of franchisees versus the Company’s estimates, its royalty revenue would be impacted. During 2022, the Company collected $4,100 more than it estimated at December 25, 2021.
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The effective interest method of income recognition applies a constant rate of interest equal to the internal rate of return on the lease. ​ For sales-type leases in which the equipment has a fair value greater or less than its carrying amount, selling profit/loss is recognized at commencement.
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For subsequent periods or for leases in which the equipment’s fair value is equal to its carrying amount, the recording of income is consistent with the accounting for a direct financing lease. ​ For leases that are accounted for as operating leases, income is recognized on a straight-line basis when payments under the lease contract are due. ​ Generally, when a lease is more than 90 days delinquent (when more than three monthly payments are owed), the lease is classified as being on non-accrual and the Company stops recognizing leasing income on that date.
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Payments received on leases in non-accrual status generally reduce the lease receivable. Leases on non-accrual status remain classified as such until there is sustained payment performance that, in the Company’s judgment, would indicate that all contractual amounts will be collected in full. ​ Recent Accounting Pronouncements ​ See Note 2, “Significant Accounting Policies — Recently Issued Accounting Pronouncements”. ​

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company had no interest rate derivatives in place at December 31, 2022. ​ None of the Company’s cash and cash equivalents at December 31, 2022 was invested in money market mutual funds, which are subject to the effects of market fluctuations in interest rates. ​ Foreign currency transaction gains and losses were not material to the Company’s results of operations for the year ended December 31, 2022, as less than 8% of the Company’s total revenues and less than 1% of expenses were denominated in a foreign currency.
Biggest changeThe Company had no interest rate derivatives in place at December 30, 2023. ​ None of the Company’s cash and cash equivalents at December 30, 2023 was invested in money market mutual funds, which are subject to the effects of market fluctuations in interest rates. ​ Foreign currency transaction gains and losses were not material to the Company’s results of operations for the year ended December 30, 2023, as approximately 8% of the Company’s total revenues and less than 1% of expenses were denominated in a foreign currency.
Based upon these revenues and expenses, a 10% increase or decrease in the foreign currency exchange rates would impact annual pretax earnings by approximately $628,000. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. ​
Based upon these revenues and expenses, a 10% increase or decrease in the foreign currency exchange rates would impact annual pretax earnings by approximately $670,000. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. ​
At December 31, 2022, the Company’s line of credit with CIBC Bank USA included a commitment for revolving loans of $20.0 million. The interest rates applicable to revolving loans are based on either the bank’s base rate or SOFR for short-term borrowings (twelve months or less).
At December 30, 2023, the Company’s line of credit with CIBC Bank USA included a commitment for revolving loans of $20.0 million. The interest rates applicable to revolving loans are based on either the bank’s base rate or SOFR for short-term borrowings (twelve months or less).
The Company had no revolving loans outstanding at December 31, 2022 under this line of credit. The Company’s earnings would be affected by changes in short-term interest rates only in the event that it were to borrow amounts under this facility.
The Company had no revolving loans outstanding at December 30, 2023 under this line of credit. The Company’s earnings would be affected by changes in short-term interest rates only in the event that it were to borrow amounts under this facility.
With the Company’s borrowings at December 31, 2022, a one percent increase in short-term rates would have no impact on annual pretax earnings.
With the Company’s borrowings at December 30, 2023, a one percent increase in short-term rates would have no impact on annual pretax earnings.

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