Winmark Corporation: Sustainable Growth and Dividend Potential in the Resale Sector

The resale industry is proving to be a resilient sector, driven by shifting consumer preferences toward sustainability and cost-conscious spending. Within this space, Winmark Corporation (NASDAQ: WINA) stands out as a leader, with its Q2 2025 results and dividend announcement underscoring its ability to balance growth, profitability, and shareholder returns. This analysis explores how Winmark's franchise-driven model, strong cash flow, and disciplined capital allocation position it as an attractive income investment with long-term growth potential.

Earnings Resilience and Franchise Expansion

Winmark reported Q2 2025 net income of $10.6 million, a marginal increase from $10.4 million in the prior-year period. While revenue grew modestly to $20.4 million, the company's focus on high-margin royalties and leasing income—key drivers of its franchise ecosystem—continues to fuel profitability. Year-to-date net income rose to $20.6 million, reflecting consistent execution.

At the core of its growth is the expanding franchise network. As of June 2025, Winmark operated 1,371 franchises across its five brands (Plato's Closet®, Once Upon A Child®, Play It Again Sports®, Style Encore®, and Music Go Round®), with over 2,800 available territories and 77 additional franchises awarded but not yet open. This scalability ensures steady revenue streams, as new locations contribute to royalties and licensing fees. The company's emphasis on franchising—rather than company-owned stores—minimizes capital intensity while spreading operational risk.

Dividend Growth: A Sustainable Income Play

Winmark's dividend policy is a highlight for income investors. In Q2 2025, the Board of Directors raised the quarterly dividend to $0.96 per share, a 6.7% increase from the prior quarter's $0.90. This marks the fifth consecutive year of dividend hikes, with a five-year growth rate of 30.8%. While the current yield is 1.04%—lower than the retail sector average—it is supported by a conservative payout ratio of 34% of earnings, leaving ample room for future increases.

Historically, dividend announcement dates have had a positive impact on WINA's stock performance. From 2022 to the present, the stock demonstrated a 50% win rate within three days of an announcement, a 35.7% win rate over ten days, and a 50% win rate over 30 days, with the strongest gains reaching 1.85% by day 54. This consistency underscores the market's favorable reception to the company's dividend policy, reinforcing its appeal as a reliable income investment.

The company's strong cash flow reinforces this sustainability. Operating cash flow for the first half of 2025 hit $24.1 million, up 12.7% year-over-year, while manageable debt levels—$30 million line of credit/term loan against $28.8 million in cash reserves—reduce financial risk.

Sustainability and Strategic Priorities

Winmark's commitment to sustainability aligns with broader industry trends. Its franchise brands promote circular economies by reselling gently used goods, reducing waste and environmental impact. The company has also invested in technology and marketing to enhance operational efficiency and brand visibility. CEO Brett D. Heffes emphasized this focus in Q2 results, stating, “Our investments in innovation and franchise support are critical to maintaining leadership in a growing resale market.”

Valuation and Investment Thesis

At a July 14 closing price of $373.04, Winmark's TTM dividend yield is 1.03%, which is modest compared to high-yield sectors but reasonable given its growth profile. The company's dividend sustainability score of 50%—while low—improves when considering its strong cash generation and conservative payout ratios.

For investors seeking income with growth upside, Winmark offers a compelling balance:
- Predictable Cash Flows: Franchise royalties provide recurring revenue.
- Scalable Model: Over 2,800 available territories suggest ample room for expansion.
- Undervalued Potential: The stock's P/E ratio of 13.5x (based on trailing earnings) is lower than peers, suggesting room for revaluation as the resale sector gains traction.

Risks and Considerations

• Economic Sensitivity: Consumer spending on resale goods could slow during economic downturns.
• Competitive Pressure: The resale market is fragmented, and new entrants (e.g., e-commerce platforms) pose a threat.
• Geographic Concentration: Most franchises are in North America, limiting diversification.

Conclusion: A Conservative Income Play with Growth Catalysts

Winmark Corporation's Q2 results reaffirm its position as a well-managed, cash-generative franchise leader in the resale sector. While its dividend yield is not the highest, its sustainable payout ratios, scalable franchise model, and focus on innovation make it a reliable income investment with room for dividend growth. For investors prioritizing resilience and steady returns, Winmark offers an attractive entry point, especially at current valuations.

As the resale industry continues to grow—driven by sustainability trends and cost-conscious consumers—Winmark's disciplined execution and franchise network position it to capitalize on this tailwind. This makes it a compelling long-term holding for income-focused investors.