WINMARK CORP (WINA) stock intrinsic value fair value estimate & owner earnings analysis

Winmark franchises five second-hand retail brands - Plato's Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round - with 1,378 stores at the end of 2025, 165 of them in Canada. Winmark owns no stores: franchisees buy the inventory, sign the leases and hire the staff, and Winmark collects royalties on their sales under 10-year agreements. In 2025 it renewed 98% of agreements that came up, in line with 98-99% over the prior three years, and opened 55 stores against 27 closures. Capital spending is a rounding error - about $0.2M on $86M of revenue in 2025 - so nearly every dollar of profit is cash available to owners. One adjustment matters for the history. Winmark used to run an equipment-leasing book, wound down between 2019 and 2024. During the wind-down it reported collections from that book inside operating cash flow (as much as $19.4M in 2019) while the matching purchases sat elsewhere. We removed those collections from every year so the record reflects franchising alone. On that basis owner earnings rose from about $7.85 a share in 2019 to $11.94 in 2025, dipping only in 2020 when stores closed for the pandemic. Because Winmark carries debt, we value the business before its lenders and then subtract what it owes. Adding back about $2.4M a year of interest, the business produced between $10.97 and $12.60 a share over 2021-2025; we anchor on the five-year median of $12.13 (about $45M). Earlier years are left out because the leasing wind-down and the 2020 closures distort them. Business cash flow grew 3.0% in 2025; our base case starts at 2% for 2026, because the first half of 2026 showed revenue up only 1.1% and net income down 4.4%. Winmark owes $60M: $30M of Prudential notes at a fixed 3.18% due September 2028 and $30M of CIBC term loans at 4.60-4.75% due April 2029. It held $25.8M of cash at June 2026, of which we treat about $21M as surplus. Because both loans are priced cheaply until they mature, the effective burden is about $2.6M lighter, leaving net debt of roughly $37M, or about $10 a share. Interest is covered more than fifteen times, covenants were met at year-end, and even our low case carries this debt easily. The company has repeatedly borrowed to fund special dividends ($9.40, $7.50 and $10.00 a share in 2023-2025), so the debt is a payout choice rather than a strain. Base case, about $243 a share: the store base grows slightly as it has (new openings outnumbering closures about two to one), renewals stay near 98%, and royalties track franchisee sales, giving 2% growth in 2026 and 3% a year after - in line with the 2019-2025 record of a modest net store gain plus inflation in resale prices. After year ten we assume the royalty stream holds flat, since 10-year agreements and near-universal renewal are a structural feature that has persisted for decades. The business is worth about $937M, less $37M of net debt, leaving about $900M. Low case, about $136 a share: a repeat of the 2020 shutdown, when revenue fell about $7M (roughly 9%) and owner earnings dipped, taken here as a 12% drop in year one with partial recovery, followed by online resale - ThredUp, eBay, Poshmark, Facebook Marketplace - steadily pulling shoppers out of stores so the royalty base shrinks 2% a year for good. The business is worth about $540M, less $37M of debt, leaving about $504M. High case, about $311 a share: openings continue at the 2025 pace, giving 4.5% annual growth for nine years after a 3% first year, tapering to 2.5% for the following decade as the store count approaches what the franchise territories can hold. Worth about $1.19B, less $37M of debt, about $1.15B. We did not credit new brands, acquisitions or wider margins, which the company has not demonstrated. Margin of safety price: we are confident in the earnings level - ten years of filings show a royalty stream that lost little even in 2020, with no inventory, no store leases and no customer larger than a single franchisee. The worst plausible outcome is a slow, permanent shift of second-hand buying online that no single year reveals; the structure survives it because the business needs almost no capital and the debt is small, but the value would drift toward our low case. The things we are most likely wrong about are the long-run store count and whether the royalty base keeps up with inflation; if both disappoint the shares are worth roughly $140-170. At about $145 the business produces around $12 a share of cash a year, an 8% yield paid out almost entirely as dividends over the holding period, and from that price the base case implies a return above 20% a year if the shares move toward the base value over three to four years. Above that price the implied return depends on the base case being right, which is not enough margin for a business whose main risk is gradual and hard to see. The margin-of-safety price is $145. Our figures are not comparable with our previous published estimate, which was prepared on a different basis; nothing material in the business changed between the two. A residual of about $1-2M a year in operating cash flow for 2023-2025 could not be tied to a labelled line item; it does not change the conclusion.