Retail Sector Ideas

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>>> Winmark -- While many consumers might be unaware of small-cap stock Winmark (WINA), they are probably aware of its franchise-based retail companies that specialize in buying and selling secondhand goods: Music Go Round, Once Upon a Child, Plato's Closet, Play It Again Sports, and Style Encore.


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Winmark's stock has demonstrated remarkable performance, surging 53% year to date, and even more impressively, delivering a total return of 145% over the past five years.

Like Costco, Winmark has a relatively low annual dividend yield and frequently pays a special dividend. Its yield is 0.9%, and it has paid a special dividend each of the last three years at an average of $4.97 per share. With the announcement of its special cash dividend typically in October, it is possible another one could be soon.

As a franchise business, Winmark is incentivized to expand its network because its revenue is primarily derived from franchise fees and royalties. Prospective franchisees must make an initial franchise payment of approximately $25,000 in the United States and contribute 4% to 5% of their weekly gross sales. CEO Brett Heffes believes there are 2,800 open territories for franchises, with only 1,303 locations as of July 1, 2023.

If there is a negative for Winmark, the recent stock run-up has made its valuation expensive, with a current P/E of 32.7. For comparison, Winmark averaged a P/E of 23.2 over the past five years. Nonetheless, with record revenue of $83.2 million and near-record net income of $39.9 million over the trailing 12 months, the market might finally be taking notice of the resale company valued at a market capitalization of $1.3 billion.

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