10-Q: Winmark Corp. Q2 2026 Earnings: Revenue Up, SG&A Rises

Winmark Corporation reported increased revenue driven by royalties, with a notable rise in selling, general, and administrative expenses for the second quarter of 2026.

Summary

• Winmark Corporation's revenue for the second quarter of 2026 was $22.0 million, an increase from $20.4 million in the same period of 2025.
• For the first six months of 2026, revenue reached $42.8 million, up from $42.3 million in the prior year period.
• Royalties increased by 7.8% to $20.1 million in Q2 2026 and by 8.1% to $39.4 million in the first six months of 2026, driven by higher franchise retail sales and an increased number of franchise stores.
• Selling, general, and administrative (SG&A) expenses rose by 13.9% to $7.5 million in Q2 2026 and by 9.6% to $15.4 million in the first six months of 2026, attributed to investments in technology, marketing, and increased compensation.
• Net income for Q2 2026 was $10.4 million, a slight decrease from $10.6 million in Q2 2025.
• Net income for the first six months of 2026 was $19.6 million, down from $20.6 million in the same period of 2025.
• The company maintained a 100% franchise renewal rate for the first six months of 2026.
• Cash and cash equivalents, including restricted cash, stood at $26.0 million at the end of Q2 2026.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a moderately positive filing, with strong revenue and royalty growth offset by rising operating expenses and a slight dip in net income.

Positives

• Royalties increased by 7.8% to $20.1 million in Q2 2026 and by 8.1% to $39.4 million in the first six months of 2026, indicating strong underlying franchise performance.
• Total revenue for Q2 2026 increased to $22.0 million from $20.4 million in Q2 2025.
• The company achieved a 100% franchise renewal rate for the 50 agreements available for renewal in the first six months of 2026.
• Net store growth across all brands, with a total of 1,389 franchised stores as of June 27, 2026.
• The company ended the period with $26.0 million in cash, cash equivalents, and restricted cash.
• Management believes current liquidity, cash generation, and the Line of Credit will be adequate to fund operations through 2027.

Negatives

• Selling, general, and administrative (SG&A) expenses increased by 13.9% to $7.5 million in Q2 2026 and by 9.6% to $15.4 million in the first six months of 2026.
• Net income decreased slightly to $10.4 million in Q2 2026 from $10.6 million in Q2 2025.
• Net income for the first six months of 2026 decreased to $19.6 million from $20.6 million in the prior year period.
• Merchandise sales decreased to $1.5 million in the first six months of 2026 from $1.7 million in the same period of 2025, primarily due to lower technology purchases by franchisees.
• The effective income tax rate increased to 21.2% in Q2 2026 and 21.6% for the first six months of 2026, compared to 16.6% and 20.4% respectively in the prior year periods, due to lower tax benefits from stock options.
• The company has $30.0 million in delayed draw term loan borrowings outstanding.

Risks

• The implementation of a monthly Software Fee and a North American Ad Fund for the Platos Closet brand may adversely affect franchisee relationships and system performance.
• Deterioration in franchisee relationships could negatively impact franchisee retention, new franchise development, and overall system performance.
• The company's ability to pay debt service obligations depends on future performance, which may be affected by financial, business, and economic factors.
• Access to credit markets and cost of capital could be impacted by a financial or credit crisis.
• The company is exposed to interest rate risk on its variable rate debt, although no revolving loans were outstanding at June 27, 2026.
• Foreign currency exchange rate fluctuations could impact pretax earnings, with a 10% change potentially affecting annual pretax earnings by approximately $782,700.

Future Outlook

Management believes that the combination of cash on hand, cash generated from operations, and the available Line of Credit will be adequate to fund planned operations through 2027. The company expects to generate cash necessary to pay expenses and debt service obligations from operating cash flows and potentially through opportunistic refinancing or other means.

Management Comments

• Winmark the Resale Company is focused on sustainability and small business formation.
• Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.
• 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.
• Our ability to grow our operating income is dependent on our ability to: (i) effectively support our franchise partners so that they produce higher revenues, (ii) open new franchises, and (iii) control our selling, general and administrative expenses.

Industry Context

StockSavvy.ai notes that Winmark's performance, particularly its strong royalty growth and high franchise renewal rates, aligns with trends in the resilient franchise sector, which often demonstrates stability during economic fluctuations. However, the increase in SG&A expenses warrants monitoring as it impacts profitability.

Comparison to Industry Standards

• Winmark's royalty revenue growth of 8.1% for the first six months of 2026 is strong compared to the typical franchise industry average, which can range from 3-7% depending on brand maturity and market conditions.
• The 100% franchise renewal rate is exceptionally high and significantly exceeds industry benchmarks, suggesting strong franchisee satisfaction and confidence in the Winmark brands.
• The increase in SG&A expenses as a percentage of revenue (from 33.1% to 35.9% for the six-month period) is a point of attention. While investments in technology and marketing are common, this increase should be evaluated against the returns generated, especially when compared to peers who may achieve similar growth with more controlled expense ratios.

Legal Proceedings

• The company is not a party to any material litigation and is not aware of any threatened litigation that would have a material adverse effect on its business.

Stakeholder Impact

• Shareholders: Potential for continued dividend payments, but impacted by rising SG&A and slight net income decrease. Stock repurchase authorization remains.
• Franchisees: May face increased operating costs due to new software fees and ad funds, but also benefit from continued support and high renewal rates.
• Employees: Benefit from investments in technology and marketing, reflected in increased compensation expenses.
• Creditors: Company is in compliance with debt covenants, and management expects sufficient liquidity through 2027.

Next Steps

• Continue to support franchise partners to drive higher revenues.
• Focus on opening new franchises.
• Control selling, general, and administrative expenses.
• Monitor the impact of the monthly Software Fee and North American Ad Fund on franchisee relationships and system performance.
• Evaluate the impact of new accounting guidance on expense disclosures effective after December 15, 2026.

Key Dates

Recommendation

The company demonstrates consistent revenue growth driven by its franchise model and maintains strong franchisee relationships. However, the increasing SG&A expenses are pressuring net income, and the introduction of new fees for franchisees introduces a potential risk. While the outlook remains stable, the rising costs warrant a 'hold' recommendation pending clearer visibility on expense management and the impact of new initiatives.

Keywords

Winmark Corporation, Franchise, Royalties, 10-Q, Financial Results, Quarterly Report, Platos Closet, SEC Filing