FDD Talk: What You Need to Know About the Primrose Schools Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Primrose Schools franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Primrose Schools franchise, based on Item 7 of the company’s 2017 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Primrose Schools franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of Primrose Schools’ financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2016 average, median, high, and low revenue for the 14 Smaller Facilities and 273 Larger Facilities (separately stated) that were open and operating throughout the entire 24-month period from January 1, 2015 to December 31, 2016

• number and percentage of Smaller Facilities that achieved 2016 revenues of more than $1,500,000; $1,250,000 to $1,499,999; and $816,000 to $1,249,999, respectively

• number and percentage of Larger Facilities that achieved 2016 revenues of more than $2,500,000; $2,100,000 to $2,499,999; $1,500,000 to $2,099,999; and $755,000 to $1,499,999, respectively

• 2016 average gross revenue, total expenses, and EBITDAR for the top third, middle third, bottom third, and all 195 Larger Facilities that were open and operating throughout the entire 24-month period from January 1, 2015 to December 31, 2016, and submitted complete and timely financial information to the franchisor for the full period

Section I – Background Information

10 Things You Need to Know About the Primrose Schools Franchise

Accelerated Real Estate Growth in 2017

1.  In early 2017, Primrose Schools announced that it was on track to experience its seventh consecutive year of real estate growth by opening a record 34 schools by the end of 2017. At the time of the announcement, Primrose said that it had about 135 schools in its development pipeline and that it had opened its first schools in two new markets, Arkansas and Oregon. Primrose also said that it was targeting more urban areas.

Seeking Franchisees in Western United States

2.  Prior to the Franchise Expo West, which took place from November 2 to 4, Primrose Schools announced that it was looking for qualified franchisees to help address the rapidly growing demand for high-quality child care in the western United States and across the country.

3.  Steve Clemente, president of Primrose Schools, said, “We’re looking for Franchise Owners who are interested in giving back and making a meaningful difference in their community. Opening a Primrose School not only meets increased demand for high-quality child care in a particular area, but it also provides entrepreneurs with an opportunity to invest in a legacy for their city, their children and the future.”

Breaks Fundraising Record in 2016

4.  In early 2017, Primrose Schools announced that it had raised more than $720,000 for local and national children’s charities in 2016, breaking its previous record by nearly $100,000.

5.  Some of the highlights of local Primrose Promise efforts in 2016 included:

• Local Fundraising: Annual Spring Fling community events held at each school raised
  more than $290,000 for local charities such as children’s hospitals, foster homes, and more.

• Book Donations: Primrose Schools across the country donated more than 33,000 books to local libraries, schools in need, and children’s hospitals through annual book drives.

• Canned Food Drives: Primrose families and staff donated nearly 270,000 nonperishable food items to local food banks through annual Caring and Giving Food Drive events.

6.  On the national level, Primrose Schools raised funds in the following ways:

• National Partnership Support: Primrose Schools donated nearly $400,000 in total to national partners Save the Children, World Forum Foundation, and ZERO TO THREE. The funds support research, advocacy, and the daily work of these charitable partners to advance quality early education, children’s health and safety, and emergency relief.

• Primrose Promise Days of Giving: Nearly 100 members of the Primrose National Leadership Support Team participated in the first Primrose Promise Days of Giving event, contributing more than $3,800 and 400 combined volunteer hours toward local charities.

• Primrose Children’s Foundation: Primrose Schools raised more than $430,000 for the Primrose Children’s Foundation, the nonprofit arm of Primrose Promise. Through collective donations from schools to the foundation, Primrose is able to make a greater impact in times of need by providing financial support to national charitable partners. In 2017, the top school contributors to Primrose Children’s Foundation were Primrose School of Eagle Springs in Houston, Texas, Primrose School of Prestonwood in Dallas, Texas, and Primrose School of Barker-Cypress in Houston, Texas.

Company History

7.  Primrose Schools (originally called Primrose County Day School) was founded in 1982 by Paul and Marcy Erwin in Marietta, Georgia. In 1988, Jo Kirchner was hired by the Erwins as a consultant to help turn the half-day preschool to a full-day model. Kirchner also assisted in developing the franchise model for Primrose Schools, which opened its first franchised location in Georgia in 1990. That same year, Kirchner officially joined Primrose as its vice president, and today, Kirchner is the company’s CEO.

8.  Throughout the 1990s, Primrose Schools continued to grow and in 1998, it became the first educational child care company to receive accreditation from the Commission on International and Trans-Regional Accreditation (CITA) as well as the Southern Association of Colleges and Schools Council on Accreditation and School Improvement (SACS CASI). Both of these associations are recognized as the gold standard in evaluating high schools, colleges, and universities.

9.  In 1999, the Erwins retired and sold Primrose Schools to Greenwich, Connecticut-based Security Capital Corporation. Five years later, the company was sold again to American Capital Strategies for $63 million. In 2008, Primrose Schools was acquired by Roark Capital Group, an Atlanta-based private equity firm. Today, there are over 350 Primrose Schools across the U.S.

Entrepreneur’s Franchise 500

10.  Primrose Schools has appeared on Entrepreneur’s annual Franchise 500 list every year for the past 10 years. The company’s highest rank was No. 27 in 2018, while its lowest rank was No. 193 in 2009. Primrose Schools was also named No. 1 in the Child Care Franchise Company category in 2018.

Section II – Estimated Costs

• Please click here for detailed estimates of Primrose Schools franchise costs, based on Item 7 of the company’s 2017 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Primrose Schools’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

• The data below has been generated using financial reports submitted by franchisees. The franchisees entered all data into their financial reports and the franchisees were responsible for categorizing their expenses according to guidelines Primrose Schools provides.

• Primrose Schools has not audited or verified these financial reports nor has it asked questions of the submitting franchisees to determine whether they are in fact accurate and complete, although it has no information or other reason to believe that they are unreliable.

• Primrose Schools did not use any reports that were incomplete or for which the information was presented in a manner that prohibited it from applying the information to one of the categories below. The data also does not include franchisees that failed to submit complete financial reports when Primrose Schools prepared this information.

• For purposes of this Item 19, the “Summary Period” means the 24-month period from January 1, 2015 to December 31, 2016.

• Primrose Schools considers franchised Facilities with a capacity of between 124 and 144 children to be “Smaller Facilities” and franchised Facilities with a capacity of between 145 and 296 children to be “Larger Facilities.”

• There is one franchised Facility with a capacity of 418 children, which has not been included since it is not representative of a typical Facility (the “Excluded Facility”).

• At the end of Primrose Schools’ 2016 fiscal year, there were 288 franchised Facilities (including 14 Smaller Facilities, 273 Larger Facilities, and 1 Excluded Facility) that had been in operation throughout the entire Summary Period.

Part 1 – Summary of Annual Revenues of Franchised Schools During the Period January 1, 2016 Through December 31, 2016

• The three tables directly below set forth the historical average annual revenues during the period between January 1, 2016 and December 31, 2016 achieved only by franchised Facilities that were open and operating throughout the entire Summary Period, excluding the Excluded Facility.

• A total of 287 franchised Facilities, including 14 Smaller Facilities and 273 Larger Facilities, were open and in operation throughout the Summary Period and are represented in the three tables.

• The Facilities represented in this Item 19 are located in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Massachusetts, Maryland, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.

Table 1 – Average, Median, Low, and High Revenue

Smaller Facilities (14 Total)