FDD Talk 2020: 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 2020 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 2020 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 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Primrose Schools’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average, median, high, and low revenue for the 13 Smaller Facilities and 350 Larger Facilities (separately stated) that were open and operating throughout the entire 24-month period from January 1, 2018 to December 31, 2019

• number and percentage of Smaller Facilities that achieved 2019 revenues of more than $1,500,000; $1,250,000 to $1,499,999; and $788,000 to $1,249,999, respectively

• number and percentage of Larger Facilities that achieved 2019 revenues of more than $2,500,000; $2,100,000 to $2,499,999; $1,500,000 to $2,099,999; and $601,000 to $1,499,999, respectively

• 2019 average gross revenue, total expenses, and EBITDAR for the top third, middle third, bottom third, and all 98 Larger Facilities that were open and operating throughout the entire 24-month period from January 1, 2018 to December 31, 2019, and submitted complete and timely financial information to the franchisor for the full period

Section I – Background Information

21 Things You Need to Know About the Primrose Schools Franchise

Propels Franchise Development Through Nationwide Expansion in 2019

1.  In mid-February 2020, Primrose Schools announced its significant achievements in 2019, propelling nationwide growth and experiencing a surge in franchise development with:

• 28 new openings, including Primrose’s milestone 400th location;
• More than $861 million generated in system-wide revenue;
• The signing of 38 new franchise agreements with existing and new franchise owners.

2.  Primrose’s significant growth and dedication to franchise owners in 2019 resulted in the brand being recognized with numerous industry awards including Forbes’ 2019 Best Franchises to Buy. In addition, the brand’s compounded success throughout the years earned Primrose the title of the No. 1 child care franchise in the 2020 Entrepreneur Franchise 500 list for the fourth consecutive year.

3.  Steven Fricker, chief development officer for Primrose Schools, said, “Year after year, Primrose has continued to prove itself as an industry leader backed by development milestones and industry recognitions. This past year has only reinforced our position as a sound franchise opportunity matched by innovative expansion strategies and flexible real estate options. As a result, we kicked off 2020 with more than 400 locations open and a strong pipeline in place with our Franchise Owners prepared to further Primrose’s growth in the coming year.”

4.  On the heels of these achievements in 2019, Primrose is driving its aggressive development efforts in 2020 and targeting growth in key markets including Boston, Washington D.C., Chicago, Phoenix, and Seattle while opening in three new states: Iowa, Michigan, and New York. Primrose’s continued expansion is further fueled by the increasing demand for quality early education in communities where Live-Work-Play-Learn values continue to shape their development landscape.

5.  As these neighborhoods prioritize education, recognizing it is the final piece to a thriving community, Primrose is able to leverage its history as a stand out leader in the early education space in order to provide ample opportunity for new and existing franchise owners.

6.  Fricker added, “Our success in 2019 was a direct reflection of the ongoing critical need for high-quality early education, as families throughout the country face long waiting lists and limited options for their children. For these reasons, we’re seeing a surge in franchise ownership interest from prospective and existing Franchise Owners seeking an opportunity to impact their communities in a meaningful way while owning a financially rewarding business with a proven successful model.”

Charitable Arm Pledges to Match $100,000 to #SAVEWITHSTORIES to Support COVID-19 Relief Efforts

7.  In mid-April 2020, Primrose Schools Children’s Foundation, the charitable arm of Primrose Schools, a high-quality early education and care leader, announced that it partnered with Save the Children by pledging $100,000 to their national campaign #SAVEWITHSTORIES to support children impacted by COVID-19.

8.  Millions of children in the United States go to school not just to learn, but also for breakfast, lunch, and sometimes dinner. As schools closed due to the pandemic, Save the Children launched #SAVEWITHSTORIES in partnership with Jennifer Garner and Amy Adams to share beloved children’s books on social media, offering fun and education while raising awareness and money to provide proper nutrition and educational resources to children affected by the pandemic.

9.  Jo Kirchner, CEO of Primrose Schools and chair of the Primrose Schools Children’s Foundation, said, “At Primrose Schools, our mission is to create a brighter future for all children. The care and needs of children come first and I am proud that the Primrose Schools Children’s Foundation is partnering on this important cause to do just that, and ensure children across our nation have the proper resources to grow, learn and thrive.”

10.  In support, the Primrose Schools Children’s Foundation is matching the first $100,000 donations made to #SAVEWITHSTORIES. This donation from the Primrose Schools Children’s Foundation is possible thanks to the generosity of its franchise owners, support center team, and Primrose families, through various annual fundraising efforts. Anyone is welcome to support at-risk children across the United States through the Primrose Schools Children’s Foundation and Save the Children #SAVEWITHSTORIES donation page.

Recognizes Top-Performing Franchise Owners at National Conference in San Antonio

11.  In mid-October 2019, Primrose Schools brought together a record number of franchise owners from all of its locations at its national conference to plan for the future following a period of significant growth for the company. At the conference, Primrose franchise owners aligned on future strategy and growth plans, heard from third-party business experts, shared best practices, and participated in small breakout sessions on topics tailored to their personal business objectives.

12.  Primrose Schools also announced its most prestigious recognition of top performance – the Franchise Owner of the Year award – to the owners of Primrose School of NW Oklahoma City: Sarah Albahadily, Andrea Choate, and Ashley Hughes. Overall, Primrose recognized the franchise owners of 13 schools for top performance in a variety of categories as part of its 2019 national conference.

13.  Jo Kirchner, CEO of Primrose Schools, said, “Andrea, Ashley and Sarah live the Primrose vision every day, delivering the best and most trusted early education and care to the children and families they serve. Their love for the community and passion for providing an unparalleled early learning experience is evident in everything they do, and I’m thrilled to recognize them with this much-deserved honor.”

14.  The Franchise Owner of the Year award honors exceptional franchise owners for their leadership and dedication to delivering high-quality early education and care to the children and families in their communities. Criteria also includes a demonstrated commitment to the Primrose Schools Standard of Excellence Accreditation, a rigorous and recurring evaluation that all Primrose schools undergo to ensure the quality of school staff and culture, parent relationships, curriculum implementation, staff training, campus environment, and philanthropic involvement.

15.  Sarah Albahadily, franchise owner of Primrose School of NW Oklahoma City, said, “We are incredibly honored to receive this recognition. It’s a dream come true to deliver the best early learning experience possible to the children and families in our community. This award belongs to our entire school team who share our passion for high-quality early education – we couldn’t do it without them!”

Company History

16.  Primrose Schools was founded as Primrose Day School in 1982 by Paul and Marcy Erwin in Marietta, Georgia. The Erwins wanted to offer an early childhood education program that was different from the other preschools at the time, which primarily focused on play. Instead, the Erwins decided to make education the center of Primrose’s curriculum. The Primrose Day School concept was a success and a few more schools followed in the area.

17.  In 1988, Jo Kirchner, Primrose’s current president and CEO, was hired as a consultant to help shift the then half-day preschool to a full-day model, as well as to assist in the launch of the Primrose franchising concept. By 1990, Primrose was ready to start franchising.

18.  A few years later, in 1996, Primrose Schools became the first childcare and early childhood education company to receive accreditation from the Commission on International and Trans-Regional Accreditation (CITA), the Southern Association of Colleges and Schools Council on Accreditation and School Improvement (SACS CASI), and the North Central Association Council on Accreditation and School Improvement (NCA CASI).

19.  The Erwins retired from the company in 1999 and sold it to Greenwich, Connecticut-based Security Capital Corporation. Jo Kirchner was appointed as Primrose’s president and CEO at that time. Primrose Schools continued to expand across the U.S. over the next few decades.

20.  In 2012, Primrose Schools was the first preschool to receive AdvancED’s Corporation Systems Accreditation under the new Early Learning Standards. Today, there are Primrose Schools across 23 states.

Entrepreneur’s Franchise 500

21.  Primrose Schools ranked No. 54 on Entrepreneur’s 2020 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 2020 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 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  336
• Outlets at the End of the Year:  367
• Net Change:  +31

2018

• Outlets at the Start of the Year:  367
• Outlets at the End of the Year:  391
• Net Change:  +24

2019

• Outlets at the Start of the Year:  391
• Outlets at the End of the Year:  418
• Net Change:  +27

Company-Owned

2017

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

2018

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

2019

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

Section V – Financial Performance Representations (Item 19, 2020 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 this information was prepared.

• For purposes of this Item 19, the “Summary Period” means the 24-month period from January 1, 2018 to December 31, 2019.

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

• Three Facilities that were open throughout the Summary Period have not been included, including one franchised Facility with a capacity of 418 children and two Primrose on Premise Facilities, because they are not representative of a typical Facility (the “Excluded Facilities”).

• At the end of the fiscal year ending December 31, 2019, there were 366 franchised Facilities (including 13 Smaller Facilities, 350 Larger Facilities, and 3 Excluded Facilities) that had been in operation throughout the entire Summary Period.

• This Item 19 does not include data from 52 franchised Facilities that were open at the end of the fiscal year ending December 31, 2019 but were not open for the entire Summary Period, and one franchised Facility that closed during the Summary Period (after having been open for more than one year).

Part 1 – Summary of Annual Revenues of Franchised Schools During the Period January 1, 2019 Through December 31, 2019

• The three tables directly below set forth the historical average annual revenues during the period between January 1, 2019 and December 31, 2019 achieved only by franchised Facilities that were open and operating throughout the entire Summary Period, excluding the Excluded Facilities.

• A total of 363 franchised Facilities, including 13 Smaller Facilities and 350 Larger Facilities, were open and in operation throughout the Summary Period and are represented in the three tables.

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

Smaller Facilities (13 Total)