PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ITEM 1: Financial Statements
WINMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
| Line item | June 27, 2026 | December 27, 2025 |
|---|---|---|
| ASSETS | ||
| Current Assets: | ||
| Cash and cash equivalents | ||
| Restricted cash | ||
| Receivables, less allowance for credit losses of and | ||
| Income tax receivable | ||
| Inventories | ||
| Prepaid expenses | ||
| Total current assets | ||
| Property and equipment, net | ||
| Operating lease right of use asset | ||
| Intangible assets, net | ||
| Capitalized software | — | |
| Goodwill | ||
| Other assets | ||
| Deferred income taxes | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | ||
| Current Liabilities: | ||
| Accounts payable | ||
| Accrued liabilities | ||
| Deferred revenue | ||
| Total current liabilities | ||
| Long-term Liabilities: | ||
| Line of credit/Term loan | ||
| Notes payable, net of unamortized debt issuance costs of and | ||
| Deferred revenue | ||
| Operating lease liabilities | ||
| Other liabilities | ||
| Total long-term liabilities | ||
| Shareholders’ Equity (Deficit): | ||
| Common stock, no par value, shares authorized, and shares issued and outstanding | ||
| Retained earnings (accumulated deficit) | () | () |
| Total shareholders' equity (deficit) | () | () |
The accompanying notes are an integral part of these financial statements.
WINMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Line item | Three Months EndedJune 27, 2026 | Three Months EndedJune 28, 2025 | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|---|---|
| Revenue: | ||||
| Royalties | ||||
| Leasing income | — | — | ||
| Merchandise sales | ||||
| Franchise fees | ||||
| Other | ||||
| Total revenue | ||||
| Cost of merchandise sold | ||||
| Selling, general and administrative expenses | ||||
| Income from operations | ||||
| Interest expense | () | () | () | () |
| Interest and other income | ||||
| Income before income taxes | ||||
| Provision for income taxes | () | () | () | () |
| Net income | ||||
| Earnings per share - basic | ||||
| Earnings per share - diluted | ||||
| Weighted average shares outstanding - basic | ||||
| Weighted average shares outstanding - diluted |
The accompanying notes are an integral part of these financial statements.
WINMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Line item | Common StockShares | Common StockAmount | Retained · Earnings · (AccumulatedDeficit) | Total |
|---|---|---|---|---|
| BALANCE, December 27, 2025 | 3,571,861 | $19,612,800 | $(73,295,200) | $() |
| Stock options exercised | 5,810 | 1,033,900 | — | |
| Compensation expense relating to stock options | — | 614,100 | — | |
| Cash dividends ( per share) | — | — | (3,429,000) | () |
| Comprehensive income (Net income) | — | — | 9,254,700 | |
| BALANCE, March 28, 2026 | 3,577,671 | 21,260,800 | (67,469,500) | () |
| Stock options exercised | 9,408 | 1,235,400 | — | |
| Compensation expense relating to stock options | — | 614,200 | — | |
| Cash dividends ( per share) | — | — | (3,658,400) | () |
| Comprehensive income (Net income) | — | — | 10,394,800 | |
| BALANCE, June 27, 2026 | 3,587,079 | 23,110,400 | (60,733,100) | () |
| Line item | Common StockShares | Common StockAmount | Retained · Earnings · (AccumulatedDeficit) | Total |
|---|---|---|---|---|
| BALANCE, December 28, 2024 | 3,539,744 | $14,790,500 | $(65,836,600) | $() |
| Repurchase of common stock | (7,383) | (2,249,900) | — | () |
| Stock options exercised | 210 | 47,700 | — | |
| Compensation expense relating to stock options | — | 536,600 | — | |
| Cash dividends ( per share) | — | — | (3,186,000) | () |
| Comprehensive income (Net income) | — | — | 9,956,400 | |
| BALANCE, March 29, 2025 | 3,532,571 | 13,124,900 | (59,066,200) | () |
| Repurchase of common stock | (561) | (168,900) | — | () |
| Stock options exercised | 16,448 | 1,538,600 | — | |
| Compensation expense relating to stock options | — | 529,000 | — | |
| Cash dividends ( per share) | — | — | (3,398,500) | () |
| Comprehensive income (Net income) | — | — | 10,601,200 | |
| BALANCE, June 28, 2025 | 3,548,458 | 15,023,600 | (51,863,500) | () |
The accompanying notes are an integral part of these financial statements.
WINMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Line item | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|
| OPERATING ACTIVITIES: | ||
| Net income | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation of property and equipment | ||
| Amortization of intangible assets | ||
| Compensation expense related to stock options | ||
| Deferred income taxes | ||
| Operating lease right of use asset amortization | ||
| Tax benefits on exercised stock options | 742,800 | 971,200 |
| Change in operating assets and liabilities: | ||
| Receivables | () | () |
| Income tax receivable/payable | () | () |
| Inventories | () | |
| Prepaid expenses | () | |
| Other assets | () | () |
| Accounts payable | () | |
| Accrued and other liabilities | ||
| Deferred revenue | ||
| Net cash provided by operating activities | ||
| INVESTING ACTIVITIES: | ||
| Capitalized software | (2,210,300) | — |
| Purchase of property and equipment | () | () |
| Net cash used for investing activities | () | () |
| FINANCING ACTIVITIES: | ||
| Repurchases of common stock | — | () |
| Proceeds from exercises of stock options | ||
| Dividends paid | () | () |
| Net cash used for financing activities | () | () |
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||
| Cash, cash equivalents and restricted cash, beginning of period | 10,460,700 | 12,329,800 |
| Cash, cash equivalents and restricted cash, end of period | $25,984,500 | $28,930,200 |
| SUPPLEMENTAL DISCLOSURES: | ||
| Cash paid for interest | ||
| Cash paid for income taxes | ||
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Condensed Balance Sheets to the total of the same amounts shown above: | ||
| Six Months Ended | ||
| June 27, 2026 | June 28, 2025 | |
| Cash and cash equivalents | ||
| Restricted cash | ||
| Total cash, cash equivalents and restricted cash | $25,984,500 | $28,930,200 |
The accompanying notes are an integral part of these financial statements.
WINMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Management’s Interim Financial Statement Representation:
The accompanying consolidated condensed financial statements have been prepared by Winmark Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company has a 52/53 week year which ends on the last Saturday in December. The information in the consolidated condensed financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. The consolidated condensed financial statements and notes are presented in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q, and therefore do not contain certain information included in the Company’s annual consolidated financial statements and notes. This report should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.
Revenues and operating results for the six months ended June 27, 2026 are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity (deficit) as previously reported.
Recently Issued Accounting Pronouncements
Disaggregation – Income Statement Expenses – In November 2024, the Financial Accounting Standards Board (“FASB”) issued guidance requiring additional disclosure of the nature of expenses included in the income statement in response to requests from investors for more information about an entity’s expenses. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as disclosures about selling expenses. The guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements and disclosures.
2. Organization and Business:
The Company offers licenses to operate franchises using the service marks Plato’s Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore® and Music Go Round®. Historically, the Company also operated a middle market equipment leasing business under the Winmark Capital® mark.
3. Contract Liabilities:
The Company’s contract liabilities for its franchise revenues consist of deferred revenue associated with franchise fees and software license fees. The table below presents the activity of the current and noncurrent deferred franchise revenue during the first six months of 2026 and 2025, respectively:
| Line item | June 27, 2026 | June 28, 2025 |
|---|---|---|
| Balance at beginning of period | ||
| Franchise and software license fees collected from franchisees, excluding amount earned as revenue during the period | 1,013,700 | 1,078,200 |
| Fees earned that were included in the balance at the beginning of the period | (944,600) | (762,500) |
| Balance at end of period |
The following table illustrates future estimated revenue to be recognized for the remainder of 2026 and full fiscal years thereafter related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 27, 2026.
| Contract Liabilities expected to be recognized in | Amount |
|---|---|
| 2026 | $786,800 |
| 2027 | 1,581,400 |
| 2028 | 1,412,000 |
| 2029 | 1,263,600 |
| 2030 | 1,150,000 |
| Thereafter | 3,892,700 |
4. Fair Value Measurements:
The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses three levels of inputs to measure fair value:
- Level 1 – quoted prices in active markets for identical assets and liabilities.
- Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities.
- Level 3 – unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.
Due to their nature, the carrying value of cash equivalents, receivables, payables and debt obligations approximates fair value.
5. Leasing Operations:
In May 2021, the Company made the decision to no longer solicit new leasing customers and pursue an orderly run-off for its leasing portfolio. As of December 27, 2025, the run-off of the portfolio was completed and the Company no longer has any leasing customers or leased assets.
Leasing income as presented on the Consolidated Condensed Statements of Operations consists of the following:
| Line item | Three Months EndedJune 27, 2026 | Three Months EndedJune 28, 2025 | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|---|---|
| Operating lease income | — | — | ||
| Income on sales of equipment under lease | — | — | — | 200,000 |
| Other | — | — | — | 2,061,200 |
| Leasing income | — | — |
6. Intangible Assets & Capitalized Software
Intangible assets consist of reacquired franchise rights. The Company amortizes the fair value of the reacquired franchise rights over the contract term of the franchise. The Company recognized and of amortization expense for the six months ended June 27, 2026 and June 28, 2025, respectively.
The following table illustrates future amortization to be expensed for the remainder of 2026 and full fiscal years thereafter related to reacquired franchise rights as of June 27, 2026.
| Amortization expected to be expensed in | Amount |
|---|---|
| 2026 | |
| 2027 | |
| 2028 | |
| 2029 | |
| 2030 | |
| Thereafter | 516,300 |
Capitalized software consists of costs incurred related to the modernization of our point-of-sale system. Capitalized software has not yet been placed in service.
7. Earnings Per Share:
The following table sets forth the presentation of shares outstanding used in the calculation of basic and diluted earnings per share (“EPS”):
| Line item | Three Months EndedJune 27, 2026 | Three Months EndedJune 28, 2025 | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|---|---|
| Denominator for basic EPS — weighted average common shares | ||||
| Dilutive shares associated with option plans | ||||
| Denominator for diluted EPS — weighted average common shares and dilutive potential common shares | ||||
| Options excluded from EPS calculation — anti-dilutive |
8. Shareholders’ Equity (Deficit):
Dividends
On January 28, 2026, the Company’s Board of Directors approved the payment of a $0.96 per share quarterly cash dividend to shareholders of record at the close of business on February 11, 2026, which was paid on March 2, 2026.
On April 15, 2026, the Company’s Board of Directors approved the payment of a $1.02 per share quarterly cash dividend to shareholders of record at the close of business on May 13, 2026, which was paid on June 1, 2026.
Repurchase of Common Stock
During the first six months of 2026, the Company did not repurchase shares of its common stock. Under the Board of Directors’ authorization, as of June 27, 2026, the Company has the ability to repurchase an additional 70,656 shares of its common stock. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing.
Stock Option Plans and Stock-Based Compensation
Stock option activity under the Company’s option plans as of June 27, 2026 was as follows:
| Line item | Number ofShares | Weighted AverageExercise Price | Intrinsic Value |
|---|---|---|---|
| Outstanding, December 27, 2025 | 315,002 | $238.30 | |
| Granted | 32,868 | 377.89 | |
| Exercised | (15,218) | 149.12 | |
| Forfeited | (1,671) | 358.52 | |
| Outstanding, June 27, 2026 | 330,981 | $255.65 | 54,435,200 |
| Exercisable, June 27, 2026 | 238,613 | $207.37 | 50,344,300 |
The fair value of options granted under the Option Plans during the first six months of 2026 and 2025 were estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions and results:
| Line item | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|
| Risk free interest rate | 4.26% | 4.10% |
| Expected life (years) | 6.7 | 6.0 |
| Expected volatility | 28.78% | 30.14% |
| Dividend yield | 3.06% | 2.51% |
| Option fair value | $97.36 | $117.14 |
All unexercised options at June 27, 2026 have an exercise price equal to the fair market value on the date of the grant.
Compensation expense of $1,228,300 and $1,065,600 relating to the vested portion of the fair value of stock options granted was expensed to “Selling, General and Administrative Expenses” in the first six months of 2026 and 2025, respectively. As of June 27, 2026, the Company had $8.0 million of total unrecognized compensation expense related to stock options that is expected to be recognized over the remaining weighted average vesting period of approximately 4.0 years.
9. Debt:
Line of Credit/Term Loan
As of June 27, 2026, there were no revolving loans outstanding under the Company’s credit facility with CIBC Bank USA (the “Line of Credit”), leaving $20.0 million available for additional borrowings. As of June 27, 2026, the Company had delayed draw term loan borrowings totaling $30.0 million under the Line of Credit bearing interest ranging from 4.60% to 4.75%.
The Line of Credit has been and will continue to be used for general corporate purposes. The Line of Credit is secured by a lien against substantially all of the Company’s assets, (as the Line of Credit ranks pari passu with the Prudential facilities described below) contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the Line of Credit). As of June 27, 2026, the Company was in compliance with all of its financial covenants.
Notes Payable
As of June 27, 2026, the Company had aggregate principal outstanding of $30.0 million under its Note Agreement (“the Note Agreement”) with PGIM, Inc (formerly Prudential Investment Management, Inc.) its affiliates and managed accounts (collectively, “Prudential”) consisting of $30.0 million in principal outstanding from the $30.0 million Series C notes issued in September 2021.
The final maturity of the Series C notes is 7 years from the issuance date. For the Series C notes, interest at a rate of 3.18% per annum on the outstanding principal balance is payable quarterly until the principal is paid in full. The Series C notes may be prepaid, at the option of the Company, in whole or in part (in a minimum amount of $1.0 million), but prepayments require payment of a Yield Maintenance Amount, as defined in the Note Agreement.
The Company’s obligations under the Note Agreement are secured by a lien against substantially all of the Company’s assets (as the notes rank pari passu with the Line of Credit), and the Note Agreement contains customary financial conditions and covenants, and requires maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the Note Agreement). As of June 27, 2026, the Company was in compliance with all of its financial covenants.
In connection with the Note Agreement, the Company incurred debt issuance costs, of which unamortized amounts are presented as a direct deduction from the carrying amount of the related liability.
10. Operating Leases:
As of June 27, 2026, the Company leases its Minnesota corporate headquarters in a facility with an operating lease that expires in December 2029. The remaining lease term for this lease is 3.5 years and the discount rate is %. The Company recognized and of rent expense for the periods ended June 27, 2026 and June 28, 2025, respectively.
Maturities of operating lease liabilities is as follows for the remainder of fiscal 2026 and full fiscal years thereafter as of June 27, 2026:
| Operating Lease Liabilities expected to be recognized in | Amount |
|---|---|
| 2026 | $417,900 |
| 2027 | 851,100 |
| 2028 | 874,600 |
| 2029 | 898,600 |
| 2030 | — |
| Thereafter | — |
| Total lease payments | |
| Less imputed interest | () |
| Present value of lease liabilities |
Of the million operating lease liability outstanding at June 27, 2026, million is included in Accrued liabilities in the Current liabilities section of the Consolidated Condensed Balance Sheets.
Supplemental cash flow information related to our operating leases is as follows for the period ended June 27, 2026:
| Line item | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|
| Cash paid for amounts included in the measurement of lease liabilities: | ||
| Operating cash flow outflow from operating leases |
11. Segment Reporting:
The Company currently has 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 non-reportable operating segment includes the Company’s equipment leasing business. Segment reporting is intended to give financial statement users a better view of how the Company manages and evaluates its businesses. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The Company’s CODM primarily reviews revenue and income from operations for purposes of allocating resources and evaluating financial performance. Expenses are reviewed on a consolidated basis. The Company’s internal management reporting is the basis for the information disclosed for its operating segments. The following tables summarize financial information by segment and provide a reconciliation of segment contribution to income from operations:
| Line item | Three Months EndedJune 27, 2026 | Three Months EndedJune 28, 2025 | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|---|---|
| Revenue: | ||||
| Franchising | ||||
| Other | — | — | ||
| Total revenue | $21,966,000 | $20,416,800 | $42,815,700 | $42,336,400 |
| Franchising segment operating expenses: | ||||
| Merchandise COGS | ||||
| Selling, general and administrative expenses | ||||
| Total franchising segment expenses | ||||
| Reconciliation to operating income: | ||||
| Franchising segment income from operations | ||||
| Other operating segment income from operations | — | — | ||
| Total income from operations | $13,641,100 | $13,061,100 | $26,002,700 | $26,657,600 |
| Depreciation and amortization: | ||||
| Franchising | ||||
| Other | — | — | — | — |
| Total depreciation and amortization | $180,900 | $187,600 | $364,600 | $373,300 |
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Winmark – the Resale Company is focused on sustainability and small business formation. As of June 27, 2026, we had 1,389 franchises operating under the Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round brands. Our business is not capital intensive and is designed to generate consistent, recurring revenue and strong operating margins.
The financial criteria that management closely tracks to evaluate current business operations and future prospects include royalties and selling, general and administrative expenses.
Our most significant source of franchising revenue is royalties received from our franchisees. During the first six months of 2026, our royalties increased $2.9 million or 8.1% compared to the first six months of 2025.
Management continually monitors the level and timing of selling, general and administrative expenses. The major components of selling, general and administrative expenses include compensation and benefits, marketing and advertising, professional services, and occupancy. During the first six months of 2026, selling, general and administrative expenses increased $1.4 million, or 9.6% compared to the first six months of 2025.
Management also monitors several nonfinancial factors in evaluating the current business operations and future prospects including franchise openings and closings and franchise renewals. The following is a summary of our net store growth and renewal activity for the first six months ended June 27, 2026:
| Line item | TOTAL | AVAILABLEFOR | ||
|---|---|---|---|---|
| CLOSED | 6/27/2026 | RENEWAL | % RENEWED | |
| Plato’s Closet | (2) | 530 | 17 | 100% |
| Once Upon A Child | (3) | 445 | 21 | 100% |
| Play It Again Sports | (2) | 312 | 8 | 100% |
| Style Encore | (1) | 66 | 1 | 100% |
| Music Go Round | — | 36 | 3 | 100% |
| Total Franchised Stores | (8) | 1,389 | 50 | 100% |
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. During the first six months of 2026, we renewed 50 of the 50 franchise agreements available for renewal.
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.
Results of Operations
The following table sets forth selected information from our Consolidated Condensed Statements of Operations expressed as a percentage of total revenue:
| Line item | Three Months EndedJune 27, 2026 | Three Months EndedJune 28, 2025 | Six Months EndedJune 27, 2026 | Six Months EndedJune 28, 2025 |
|---|---|---|---|---|
| Revenue: | ||||
| Royalties | 91.6% | 91.4% | 92.0% | 86.1% |
| Leasing income | — | 0.2 | — | 5.6 |
| Merchandise sales | 3.9 | 3.9 | 3.5 | 4.1 |
| Franchise fees | 1.9 | 1.7 | 1.8 | 1.6 |
| Other | 2.6 | 2.8 | 2.7 | 2.6 |
| Total revenue | 100.0 | 100.0 | 100.0 | 100.0 |
| Cost of merchandise sold | (3.7) | (3.7) | (3.4) | (3.9) |
| Selling, general and administrative expenses | (34.2) | (32.3) | (35.9) | (33.1) |
| Income from operations | 62.1 | 64.0 | 60.7 | 63.0 |
| Interest expense | (2.8) | (3.0) | (2.9) | (2.9) |
| Interest and other income | 0.7 | 1.2 | 0.7 | 1.0 |
| Income before income taxes | 60.0 | 62.2 | 58.5 | 61.1 |
| Provision for income taxes | (12.7) | (10.3) | (12.6) | (12.5) |
| Net income | 47.3% | 51.9% | 45.9% | 48.6% |
Comparison of Three Months Ended June 27, 2026 to Three Months Ended June 28, 2025
Revenue
Revenues for the quarter ended June 27, 2026 totaled $22.0 million compared to $20.4 million for the comparable period in 2025.
Royalties and Franchise Fees
Royalties increased to $20.1 million for the second quarter of 2026 from $18.7 million for the second quarter of 2025, a 7.8% increase. The increase is primarily from higher franchise retail sales and, to a lesser extent, from having additional franchise stores in the second quarter of 2026 compared to the same period in 2025.
Franchise fees of $0.4 million for the second quarter of 2026 were comparable to $0.3 million for the second quarter of 2025.
Leasing Income
We had no leasing income for the second quarter of 2026 compared to $46,600 for the same period in 2025. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.
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”). Direct Franchisee Sales of $0.9 million for the second quarter of 2026 were comparable to $0.8 million in the same period of 2025.
Cost of Merchandise Sold
Cost of merchandise sold includes in-bound freight and the cost of merchandise associated with Direct Franchisee Sales. Cost of merchandise sold of $0.8 million for the second quarter of 2026 was comparable to $0.8 million in the same period of 2025. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the second quarter of 2026 and 2025 was 95.3% and 95.4%, respectively.
Selling, General and Administrative
Selling, general and administrative expenses increased 13.9% to $7.5 million in the second quarter of 2026 compared to $6.6 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing, the timing of advertising production expense, and outside services.
Interest Expense
Interest expense of $0.6 million for the second quarter of 2026 was comparable to $0.6 million for the second quarter of 2025.
Income Taxes
The provision for income taxes was calculated at an effective rate of 21.2% and 16.6% for the second quarter of 2026 and 2025, respectively. The increase is primarily due to less tax benefits on the exercise of non-qualified stock options during the second quarter of 2026 compared to the second quarter of 2025.
Comparison of Six Months Ended June 27, 2026 to Six Months Ended June 28, 2025
Revenue
Revenues for the first six months of 2026 totaled $42.8 million compared to $42.3 million for the comparable period in 2025.
Royalties and Franchise Fees
Royalties increased to $39.4 million for the first six months of 2026 from $36.4 million for the first six months of 2025, an 8.1% increase. The increase is primarily from higher franchise retail sales, and, to a lesser extent, from having additional franchise stores in the first six months of 2026 compared to the same period in 2025.
Franchise fees of $0.8 million for the first six months of 2026 were comparable to $0.7 million for the first six months of 2025.
Leasing Income
We had no leasing income for the first six months of 2026 compared to $2.4 million for the same period in 2025. Leasing income in the first six months of 2025 reflected the settlement of customer litigation. As of December 27, 2025, the previously announced run-off of the leasing portfolio was completed and we no longer have any leasing customers or leased assets.
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”). Direct Franchisee Sales decreased to $1.5 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. The decrease is primarily due to a decrease in technology 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. Cost of merchandise sold decreased to $1.4 million for the first six months of 2026 compared to $1.7 million in the same period of 2025. The decrease is due to a decrease in Direct Franchise Sales discussed above. Cost of merchandise sold as a percentage of Direct Franchisee Sales for the first six months of 2026 and 2025 was 95.0% and 94.8%, respectively.
Selling, General and Administrative
Selling, general and administrative expenses increased 9.6% to $15.4 million in the first six months of 2026 compared to $14.0 million in the same period of 2025. The increase was primarily due to an increase in compensation related expenses for the Company’s investments in technology and marketing.
Interest Expense
Interest expense of $1.2 million for the first six months of 2026 was comparable to $1.2 million for the first six months of 2025.
Income Taxes
The provision for income taxes was calculated at an effective rate of 21.6% and 20.4% for the first six months of 2026 and 2025, respectively. The increase is primarily due to lower tax benefits on the exercise of non-qualified stock options during the first six months of 2026 compared to the first six months of 2025.
Segment Comparison of Three Months Ended June 27, 2026 to Three Months Ended June 28, 2025
Franchising Segment Operating Income
The franchising segment’s operating income for the second quarter of 2026 increased to $13.6 million from $13.0 million for the second quarter of 2025. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general, and administrative expenses.
Other Operating Segment Income
The other operating segment income for the second quarter of 2026 was $0 compared to $42,400 for the second quarter of 2025.
Segment Comparison of Six Months Ended June 27, 2026 to Six Months Ended June 28, 2025
Franchising Segment Income
The franchising segment operating income for the first six months of 2026 increased to $26.0 million from $24.4 million for the first six months of 2025. The increase in segment contribution was due to increased royalty revenues, partially offset by an increase in selling, general and administrative expenses.
Other Operating Segment Income
The other operating segment income for the first six months of 2026 was $0.0 million compared to $2.3 million for the first six months of 2025. The segment contribution in the first six months of 2025 reflected the settlement of customer litigation.
Liquidity and Capital Resources
Our primary sources of liquidity have historically been cash flows from operations and borrowings. The components of the Consolidated Condensed 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 the second quarter of 2026 with $26.0 million in cash, cash equivalents and restricted cash compared to $28.9 million in cash, cash equivalents and restricted cash at the end of the second quarter of 2025.
Operating activities provided $22.6 million of cash during the first six months of 2026, compared to $24.1 million provided during the same period last year. The decrease in cash provided by operating activities during the first six months of 2026 compared to 2025 was primarily due to a decrease in net income.
Investing activities used $2.3 million of cash during the first six months of 2026, compared to $0.1 million used during the same period last year. The 2026 activities primarily consisted of software development costs related to the modernization of our point-of-sale system.
Financing activities used $4.8 million of cash during the first six months of 2026. Our most significant financing activities during the first six months of 2026 consisted of $7.1 million for the payment of dividends; partially offset by $2.3 million of proceeds from exercise of stock options. See Note 8 — “Shareholders’ Equity Deficit.”
Our debt facilities include a Line of Credit with CIBC Bank USA and a Note Agreement with Prudential. These facilities have been and will continue to be used for general corporate purposes, are secured by a lien against substantially all of our assets, contain customary financial conditions and covenants, and require maintenance of minimum levels of debt service coverage and maximum levels of leverage (all as defined within the agreements governing the facilities). As of June 27, 2026, we were in compliance with all of the financial covenants under the Line of Credit and the Note 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 June 27, 2026, we had no revolving loans outstanding, and had delayed draw term loan borrowings totaling $30.0 million that mature in 2029.
See Part I, Item 1, Note 9 – “Debt” for more information regarding the Line of Credit and Note 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. Our ability to pay our expenses and meet our debt service obligations depends on our future performance, which may be affected by financial, business, economic, and other factors including the risk factors described under Item 1A of our Form 10-K for the fiscal year ended December 27, 2025 and under Item 1A below. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. In such an event, we may not be able to refinance our debt, sell assets, borrow more money or raise equity on terms acceptable to us or at all. 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 business and our Line of Credit will be adequate to fund our planned operations through 2027.
Critical Accounting Policies
A discussion of our critical accounting policies is contained in our annual report on Form 10-K for the year ended December 27, 2025. There have been no changes to our critical accounting policies from those disclosed on our Form 10-K for the year ended December 27, 2025.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
The Company incurs financial market risk in the form of interest rate risk. Risk can be quantified by measuring the financial impact of a near-term adverse increase in short-term interest rates. At June 27, 2026, 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 June 27, 2026 under this Line of Credit. The Company had no interest rate derivatives in place at June 27, 2026. The Company’s fixed rate debt exposes the company to changes in the market interest rate only to the extent that the Company may need to refinance maturing debt with new debt at a higher rate.
None of the Company’s cash and cash equivalents at June 27, 2026 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 six months ended June 27, 2026. During fiscal 2025, approximately 9.1% of the Company’s total revenues and a de minimis amount 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 $782,700. 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.
ITEM 4: Controls and Procedures
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon, and as of the date of that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. There was no change in the Company’s internal control over financial reporting during its most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1: 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 1A: Risk Factors
In addition to the other information set forth in this report, including the important information in “Forward-Looking Statements,” you should carefully consider the “Risk Factors” discussed in our Annual Report on Form 10-K for the year ended December 27, 2025. If any of those factors were to occur, they could materially adversely affect our financial condition or future results, and could cause our actual results to differ materially from those expressed in its forward-looking statements in this report. Except as set forth below, we are aware of no material changes to the Risk Factors discussed in our Annual Report on Form 10-K for the year ended December 27, 2025.
As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2026, the Company is implementing a monthly Software Fee for all locations as well as a North American Ad Fund for all Plato’s Closet locations. As a result of the implementation of these fees, the Company is adding an additional risk factor.
The Company’s implementation of a monthly Software Fee and the introduction of a North American Ad Fund for its Plato’s Closet brand may adversely affect franchisee relationships and system performance.
The Company periodically implements system initiatives, including technology platforms, advertising programs, and related fees, that are intended to support brand development and operational consistency across its franchised systems. These initiatives, including the implementation of a North American Ad Fund for its Plato’s Closet brand and a monthly Software Fee may increase franchisee operating costs and may not result in immediate or uniform benefits for all franchisees. If franchisees view such initiatives as burdensome, ineffective, or misaligned with their business needs, franchisee satisfaction and compliance may be adversely affected. Any deterioration in franchisee relationships could negatively impact franchisee retention, the pace of new franchise development, and the overall performance of the Company’s franchise systems.
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the Company’s common stock repurchases during the second quarter of 2026.
| Period | Total Number ofShares Purchased | Average PricePaid Per Share | Total Number of · Shares Purchased as · Part of a PubliclyAnnounced Plan(1) | Maximum Number · of Shares that may · yet be PurchasedUnder the Plan |
|---|---|---|---|---|
| March 29, 2026 to May 2, 2026 | — | — | — | 70,656 |
| May 3, 2026 to May 30, 2026 | — | — | — | 70,656 |
| May 31, 2026 to June 27, 2026 | — | — | — | 70,656 |
(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. The total shares approved for repurchase has been increased by additional Board of Directors’ approvals and as of June 27, 2026 was limited to 5,400,000 shares, of which 70,656 may still be repurchased.
ITEM 3: Defaults Upon Senior Securities
None.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
All information required to be reported in a report on Form 8-K during the period covered by this Form 10-Q has been reported.
During the six months ended June 27, 2026, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6: Exhibits
3.1 Articles of Incorporation, as amended (Exhibit 3.1)(1)
3.2 By-laws, as amended and restated to date (Exhibit 3.2)(2) 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* (101) Interactive Data Files Pursuant to Rule 405 of Regulation S-T: Financial statements from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended June 27, 2026, formatted in Inline XBRL: (i) Consolidated Condensed Balance Sheets, (ii) Consolidated Condensed Statements of Operations, (iii) Consolidated Condensed Statements of Shareholders’ Equity (Deficit), (iv) Consolidated Condensed Statements of Cash Flows, and (v) Notes to Consolidated Condensed Financial Statements. (104) The cover page from the Quarterly Report on Form 10-Q of Winmark Corporation and Subsidiaries for the quarter ended June 27, 2026, formatted in Inline XBRL (contained in Exhibit 101).
*Filed Herewith
(1) Incorporated by reference to the specified exhibit to the Registration Statement on Form S-1, effective August 24, 1993 (Reg. No. 333-65108).
(2) Incorporated by reference to the specified exhibit to the Annual Report on Form 10-K for the fiscal year ended December 30, 2006.
WINMARK CORPORATION
Date: July 15, 2026 By: /s/ Brett D. Heffes
Brett D. Heffes Chair of the Board and Chief Executive Officer (principal executive officer)
Date: July 15, 2026 By: /s/ Anthony D. Ishaug
Anthony D. Ishaug Chief Financial Officer and Treasurer (principal financial and accounting officer)
20