Primrose’s Item 19 sets a high standard
The total investment for a single Primrose school ranges from $707,180 for franchisees that lease a facility from a third party to $3.5- to $5.7 million for the majority of franchisees, who purchase land and build their own preschool campuses under development programs offered by the franchisor. Mary Jo Kirchner has been CEO since 1999, but several top executives, including those in charge of school development, early childhood education and professional development, franchising, and franchise administration, joined the company since the beginning of 2013. President Steven Clemente arrived in May 2016.
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Kirchner said the company “has expanded our senior leadership team and board members with expertise to help our franchise system and company sustain premier brand leadership, serve more children and families and continue to drive profitable growth.”
The franchise fee is $70,000 and the royalty is 7 percent. Kirchner said Primrose may reduce first-year royalties to 2 percent as an incentive for franchisees that open schools in new designated market areas. Primrose charges franchisees an unusually high training fee, of $30,000, to train up to two owners. Kirchner said, “Franchise owners come from all backgrounds and fields, most often not education. Training and support is important to lead our school staff and deliver” the brand’s trademarked Balanced Learning approach.
As you might expect, Primrose imposes restrictions on the equipment and supplies, including toys, franchisees can use in their schools and the insurance policies they must purchase. Primrose, however, did not derive “any revenue from the sales by us of products or services to franchisees” in 2015, except for $134,834 in licensing fees paid by approved suppliers that produce apparel bearing Primrose trademarks. Vendors and suppliers contributed an additional $229,344 toward Primrose’s annual convention. These amounts are minuscule compared to the franchisor’s 2015 revenue, of almost $45 million.
Primrose corporate has “sole discretion” over the administration and expenses of the system’s $11 million brand or advertising fund, although it may seek advice from the Primrose Advisory Council of franchisees selected by their peers.
Primrose has a unique approach to awarding territories. A new franchisee is assigned a development area, in which he or she must select a school site. Development areas have no set size, but their parameters (population, number of families with children, etc.) are determined with the help of a third- party demographer. After operating for two years, the franchisee may request that Primrose set boundaries around the facility and term that a designated area where no other franchisees can operate.
Veteran franchise reporter Julie Bennett examines a franchisor’s financial disclosure documents, and writes about strengths and potential red flags. Reach Julie at email@example.com.
Primrose School’s financial performance representation includes 2015 revenue ranges for its 14 smaller facilities (under 145 children) and 270 larger schools (145-332 children). Forty-seven larger facilities, for example, had revenue of more than $2.3 million that year. The well-detailed Item 19 also includes 2015 average profit and loss statements for the 203 larger schools that turned in financial data. The table shows the average cost of everything from payroll to field trips and, where applicable, also lists the expenses as a percent of gross revenue.
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Expenses and operating income, or EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) are reported as overall averages and divided into the system’s top, middle and bottom third performers. The information is so complete that a prospective franchisee could use it to write a business plan. “We are committed to transparency with our franchise owners,” Kirchner said. “Although it’s not mandatory, we believe providing details, like expenses, in our Item 19 gives prospective franchise owners a full view of the costs involved in operating a Primrose school.”