WINA

Winmark is one of the highest-quality small-caps in US retail, but it is a franchisor, not a retailer: 88.7% of FY2025 revenue is royalties off five resale brands (Plato's Closet, Once Upon A Child, Play It Again Sports, etc.), generating a 63.4% operating margin and 48.4% net margin on just $192K of capex. That capital-light model throws off $44.9M of operating cash flow (+6.5%) on $86.1M of revenue — a near-perfect economic engine. The negative $53.7M equity and -$73.3M retained earnings are not distress; they are the deliberate result of returning far more than net income to shareholders ($49.1M of dividends, +26.4%, plus buybacks) funded partly with debt. This is a feature of the model, but it is also the key tension: dividends now exceed earnings, so the payout's growth depends on royalties continuing to compound.

The problem is pace and price. Revenue has crept from $78.2M (FY2021) to $86.1M (FY2025) — roughly a 2% CAGR — and FY2025's headline +5.9% is flattered: leasing income jumped to $2.6M almost entirely on a one-time $2.2M litigation settlement, and the leasing run-off completed in December 2025, so that line goes to ~zero in 2026. Underlying royalty growth (+5.8%) is the real, durable number, and it is good but not fast. Meanwhile SG&A rose 13.7% on compensation and a non-recurring software-license expense, compressing operating margin from 65.1% to 63.4%. EPS grew just 3.8% to $11.30.