Winmark signals uptrend as Q2 revenue tops estimates

Winmark Corp. (WINA), the used merchandise trading company, reported an increase in the fiscal 2016 second-quarter earnings and revenue, compared to the similar period of 2015.

The company also surpassed the revenue estimate of Wall Street analysts. The stock price, which closed at $99.99 on Monday, is consolidating near the 12-month high of $108.28 and is anticipated to rise further due to the reasons described below.

Winmark, which is listed as one the best small cap industries in the Forbes list, reported a rise in the fiscal 2016 second quarter revenue to $16.30 million, up from $15.48 million in the similar period of 2015.

The recorded second-quarter revenue was higher than the consensus estimate of $15.50 million.

Winmark Franchises

The company has two major divisions – Franchising and Leasing. The Franchise segment offers franchise to retail stores. There are two companies under the Leasing division – Winmark Capital Corp. and Wirth Business Credit, Inc. While Winmark Capital serves large and medium-sized businesses with focus on tech based assets, Wirth Business Credit finances small businesses.

The Royalty revenue increased 3.3% y-o-y to $10.56 million. Likewise, the Leasing income increased 13.3% y-o-y to $4.15 million. The Franchise fees grew marginally to $493,500, from $475,900 in 2015.

For the second-quarter, the Minneapolis-based company reported a rise in the net income to $5.39 million or $1.25 per share, from $4.75 million or $1 per share in the Q2 2015.

For the quarter ended June 2016, the selling, general and administrative (SGA) expenses declined to $5.94 million, from $6.33 million in the last year’s corresponding quarter. During the quarter, the leasing expense also fell to $460,100, from $510,500 in the corresponding quarter last year.

Thus, considering the quarterly data, it is evident that the stock will continue to attract investors, thereby resulting in an uptrend in price.

The stock tested the support of 91 twice (January and May) this year and continues to close near the next major resistance of 102. The price is also trading above the 50-day moving average. Similarly, the RSI indicator reveals bullishness in the scrip.

Thus, it is prudent to purchase a one touch call option contract at this point in time. The strike price of the contract should be less than or equal to 108. An expiry date in mid-August would give adequate time for the price to hit the target price.

---