Winmark Corporation: Assessing Its Attractive Business Model Amid Elevated Valuation

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The resale industry is undergoing a renaissance, driven by sustainability-conscious consumers and a cultural shift toward value-conscious shopping. Winmark Corporation (WINA), a leader in the franchised resale market, has capitalized on this trend through its five distinct brands, including Plato's Closet and Once Upon a Child. However, with a trailing price-to-earnings (P/E) ratio of 38.95 and an enterprise value-to-EBITDA (EV/EBITDA) of 28.66 as of October 2025, according to StockAnalysis statistics, the stock trades at a significant premium to both industry averages and historical norms. This raises a critical question for value investors: Is Winmark's elevated valuation justified by its business model and growth prospects, or does it signal overextension?

A Franchise Model Built for Resale's Growth

Winmark's business model is uniquely positioned to benefit from the expanding resale market. The company operates 1,377 franchises across five brands, each targeting niche markets such as children's apparel, sports gear, and luxury items, according to a Winmark blog. Its asset-light structure generates high margins-TTM net profit margins of 49.48% and operating margins of 65.17%-per a BeyondSPX report-while its franchisees benefit from centralized training and operational support, contributing to a 98% renewal rate, according to a DCF Modeling analysis.

The resale industry itself is booming. By 2029, the global secondhand apparel market is projected to reach $367 billion, growing at a 15% CAGR, per an Accio forecast, while the U.S. recommerce market is expected to expand to $91.97 billion by 2029, according to a GlobeNewswire report. Winmark's focus on Gen Z and Millennials-demographics that prioritize sustainability and affordability-aligns with these trends. As noted in a 2025 report by Winmark's corporate blog, its brands "resonate with younger consumers who seek unique, eco-friendly, and budget-conscious shopping options."

Financial Performance: Mixed Signals

Winmark's financial results reflect both strength and challenges. For the fiscal year ending December 2024, revenue declined to $81.3 million from $83.2 million in 2023, while net income dipped to $40 million from $40.2 million, according to a BusinessWire release. This contraction was partly attributed to the company's 2021 decision to run off its leasing portfolio, a strategic shift that initially dampened growth, per the 10-K filing. However, Q3 2025 results showed resilience: net income rose to $11.1 million, driven by $20.9 million in royalty income, according to an FT Markets release.

The company's profitability metrics remain robust. A 64.27% return on assets (ROA) and 116.84% return on capital employed (ROCE) highlight efficient use of capital, per StockAnalysis. Additionally, Winmark's free cash flow (FCF) generation supports its dividend policy, with a $0.96-per-share payout scheduled for November 2025, according to Trendlyne data.

Valuation: Premium Pricing or Overreach?

Winmark's valuation multiples stand out even in a high-growth sector. Its trailing P/E of 38.95 exceeds the Consumer Cyclical sector average of 19.34 and the EV/EBITDA of 28.66 surpasses the specialty retail industry average of 26.77, according to a FullRatio analysis. For context, peers like Gap, Inc. (GAP) trade at a P/E of 9.15, while Walmart (WMT) has a P/E of 40.35, per FullRatio. Analysts have noted that Winmark's unique positioning in resale justifies some premium, but its multiples now imply "perfect execution" in a competitive landscape, as argued in a Seeking Alpha analysis.

The company's forward P/E of 36.36 suggests the market expects continued earnings growth, according to StockAnalysis. However, this optimism must be weighed against risks. Rising operating expenses and a slight decline in franchise and merchandise sales in Q1 2025 highlight operational headwinds, according to a StockInvest report. Moreover, the resale market, while growing, is becoming increasingly crowded, with digital platforms like ThredUp and Poshmark intensifying competition, as noted by Accio.

Conclusion: Justified Premium or Cautionary Signal?

Winmark's business model is undeniably compelling. Its franchise-driven approach, high margins, and alignment with secular trends in sustainability position it to capture a significant share of the $367 billion global resale market. However, the current valuation demands rigorous scrutiny. At 28.66x EV/EBITDA and 38.95x P/E, Winmark trades at a 9% and 110% premium to industry averages, respectively, according to FullRatio. While its profitability and brand strength justify some premium, these multiples imply that investors are paying for future growth that may not materialize without continued innovation and market share gains.

For value investors, the key will be monitoring Winmark's ability to execute its expansion plans, particularly in digital commerce and international markets, while managing costs. If the company can sustain its high renewal rates and expand its franchise network without sacrificing margins, the current valuation may prove justified. But in a sector where overvaluation is common, prudence remains warranted.

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