FDD Talk: Primrose Schools Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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 2018 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 2018 FDD

• Section IV – Number of franchised and company-owned Primrose Schools outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Primrose Schools’ financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, median, high, and low revenue for the 13 Smaller Facilities and 293 Larger Facilities (separately stated) that were open and operating throughout the entire 24-month period from January 1, 2016 to December 31, 2017

• number and percentage of Smaller Facilities that achieved 2017 revenues of more than $1,500,000; $1,250,000 to $1,499,999; and $904,000 to $1,249,999, respectively

• number and percentage of Larger Facilities that achieved 2017 revenues of more than $2,500,000; $2,100,000 to $2,499,999; $1,500,000 to $2,099,999; and $758,000 to $1,499,999, respectively

• 2017 average gross revenue, total expenses, and EBITDAR for the top third, middle third, bottom third, and all 189 Larger Facilities that were open and operating throughout the entire 24-month period from January 1, 2016 to December 31, 2017, and submitted complete and timely financial information to the franchisor for the full period

Section I – Background Information

19 Things You Need to Know About the Primrose Schools Franchise

Sets Sights on 200 New Markets Across the U.S.

1.  At the end of April 2018, Primrose Schools announced that it had identified more than 200 mid-sized markets as the next target for company growth, as part of its overall long-term growth plan. With more than 375 schools open at the time of the announcement, the company expects these efforts to help it add nearly 125 additional locations to its system by the end of 2020.

2.  Bill Pierquet, senior vice president of school development for Primrose Schools, said, “In order to meet our goal of having 500 schools in the system by the end of 2020, Primrose will be focusing on growth in 200 new markets across the country as well as expanding in cities where we already have a strong reputation. Our target for this year is to open 36 new schools, which is an increase from last year’s record-breaking 33 new schools opened.”

3.  Primrose Schools has more than doubled the number of schools open since 2010 and looks to continue that momentum by expanding into small- and medium-sized markets. Top-priority markets include communities such as Augusta, Georgia; Ann Arbor, Michigan; Columbia, South Carolina; and Tallahassee, Florida. These smaller cities hold significant promise for the leading early education and care franchise because of the presence of large employment drivers from universities and colleges to corporation headquarters.

4.  At the start of 2018, the School Development Team had more than 185 schools in the development pipeline, which is a 17 percent increase over its pipeline at the beginning of 2017. The increase has created an influx of site searches suitable for a Primrose School in markets from coast to coast. The School Development Team works closely with franchisees and local commercial real estate professionals to find sites perfect for each school to ensure that it is accessible and convenient for families in the community.

5.  In addition to the new markets, Primrose Schools still plans to expand its presence in existing major markets across the country. At the time of the press release, the franchise had more than 55 site searches in urban and suburban neighborhoods in major metropolitan areas and vibrant smaller communities across the United States.

6.  Pierquet added, “By the end of the year, we hope to have more than 400 schools open in 31 states. One key to our growth will be these mid-markets, where we plan to bring families the high-quality early education and care they truly want and need. Our team will also be helping to increase the number of schools in large markets already familiar with Primrose, ensuring each community is well-served.”

Launches Awards Program to Celebrate Values Like Kindness and Generosity

7.  In March 2018, Primrose Schools launched its Wow Moments Awards Program, which encourages students, teachers, staff, and franchisees to regularly celebrate small but significant moments of generosity and thoughtfulness. At the time of the press release, Primrose Schools said that 10 schools across the country were recognized as the inaugural Wow Moments Awards winners for simple, everyday acts that exemplify positive values.

8.  Annette C. Heng, senior vice president of school excellence for Primrose Schools, said, “Special moments of kindness, generosity and true service excellence happen every day in Primrose Schools. Through the Wow Moments Awards program, we aim to recognize and celebrate our Franchise Owners, teachers and staff for bringing Primrose values to life and shaping the next generation to be compassionate, creative and curious – ready to take on the world and lead by example.”

9.  The Primrose Schools Wow Moments Awards included six categories. Winners of each category were selected by a committee at the Primrose National Leadership Support Center, which evaluated 600 total submissions from the 375 Primrose Schools across the country.

10.  The following are the winners and a description of their uplifting efforts:

• Primrose School of NW Oklahoma City won the Best “Best Practice” category for thoughtful “Get Well Soon” packages that the school sends home with sick students.

• Primrose School of Buford in Metro Atlanta won the Newsmakers category for when students wrote encouraging notes to Atlanta Falcons players after their loss in the Big Game in 2017.

• Five schools in the Greater Nashville area won the Primrose Promise category for their Day of Giving event where teachers, staff, students, and families spent the day cleaning up and beautifying a local Head Start campus.

• Primrose School of Crystal Falls outside of Austin, Texas, won the Active Minds category for inviting a local CBS meteorologist to visit the school to help teach the students about weather.

• Primrose School of Brassfield in Greensboro, N.C., won the Healthy Bodies category for having students learn about nutrition by harvesting fruits and vegetables from the school’s garden, which they later sold at a pop-up farmers’ market at the school.

• Primrose School of Gambrills near Baltimore, Md., won the Happy Hearts category for when preschoolers made a giant Valentine’s Day card for the local police station to thank their local heroes.

11.  Each category winner received $1,000 from the Primrose Children’s Foundation, the nonprofit arm of Primrose Schools, to donate to a local charity of its choice. Additionally, Primrose franchise owners and other members of the organization voted for a grand-prize winner, which received another $2,000 to donate to charity.

12.  Over 400 votes were cast to select the grand-prize winner, and with more than half of the votes, the winner was the five Nashville-area schools: Primrose School of Brentwood; Primrose School of Hendersonville; Primrose School of Murfreesboro; Primrose School of Nashville Midtown; and Primrose School of Spring Hill.

13.  Their Day of Giving event brought together more than 150 people to give back to the Susan Gray Head Start in Nashville, Tenn. Volunteers painted murals, planted community gardens, cleaned the campus, and donated supplies and books for the school’s library.

Company History

14.  Primrose Schools was founded as Primrose County Day School in 1982 by Paul and Marcy Erwin in Marietta, Georgia. The Erwins wanted to provide proper early childhood education that wasn’t just “all play” like most preschools at the time.

15.  Initially, Primrose was a half-day preschool. In 1988, the Erwins hired Jo Kirchner, the company’s current president and CEO, as a consultant to help the school shift to a full day model. Kirchner also helped launch the Primrose Schools franchise.

16. The fourth Primrose Schools location became the first franchise and around this time, Kirchner officially joined Primrose as its vice president. As Primrose Schools continued to grow across the country, in 1998 it became the first educational child care company to receive accreditation from the Commission on International and Trans-Regional Accreditation (CITA) and the Southern Association of Colleges and Schools Council on Accreditation and School Improvement (SACS CASI).

17.  The following year, the Erwins retired and sold Primrose Schools to Greenwich, Connecticut-based Security Capital Corporation, after which Kirchner was named president and CEO of the company. Over the next decade, Primrose Schools continued its expansion across the U.S. while adding new curriculum and programs.

18.  In 2017, Primrose Schools celebrated its 35th anniversary and now has a presence in over 29 states, serving more than 54,000 children and families.

Entrepreneur’s Franchise 500

19.  Primrose Schools ranked No. 55 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Primrose Schools franchise costs, based on Item 7 of the company’s 2018 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 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  293
• Outlets at the End of the Year:  310
• Net Change:  +17

2016

• Outlets at the Start of the Year:  310
• Outlets at the End of the Year:  340
• Net Change:  +30

2017

• Outlets at the Start of the Year:  340
• Outlets at the End of the Year:  372
• Net Change:  +32

Company-Owned

2015

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2016

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2017

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  0
• Net Change:  -1

Section V – Financial Performance Representations (Item 19, 2018 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, 2016 to December 31, 2017.

• 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’ 2017 fiscal year, there were 307 franchised Facilities (including 13 Smaller Facilities, 293 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, 2017 Through December 31, 2017

• The three tables directly below set forth the historical average annual revenues during the period between January 1, 2017 and December 31, 2017 achieved only by franchised Facilities that were open and operating throughout the entire Summary Period, excluding the Excluded Facility.

• A total of 306 franchised Facilities, including 13 Smaller Facilities and 293 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, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin.

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

Smaller Facilities (13 Total)