BIG O TIRES ITEM 19
The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential financial performance of its franchised and/or franchisor-owned outlets, if there is a reasonable basis for the information, and if the information is included in the disclosure document. Financial performance information that differs from that included in Item 19 may be given only if: (1) a franchisor provides the actual records of an existing outlet you are considering buying; or (2) a franchisor supplements the information provided in this Item 19, for example, by providing information about possible performance at a particular location or under particular circumstances.
The following information is provided for the purpose of helping you evaluate the potential earnings capability of a Big O Store. Please carefully read all information in this Item 19, including the statements following the tables, which explain the information provided in the tables below and the limitations on this and the other information contained in this Item 19.
A. Gross Revenues
Part A of this financial performance representation includes the historical average annual Gross Revenues for U.S. franchised Big O Tires Stores that operated from January 1, 2020 through December 31, 2020 and met the following criteria: (i) the Store had operated for at least 12 consecutive months as of December 31, 2020, and (ii) the Store reported Gross Revenues data to us for each month of the full 2020 year. As of the end of the 2020 Year, there were a total of 425 franchised Big O Tires Stores in operation in the U.S., however only 412 met the criteria (the “Part A Reporting Stores”). There were 7 Stores that closed for various reasons during 2020, none of which were open less than 12 months. Company-owned outlets are not included in this Part A table.
Of the 412 Part A Reporting Stores, as of December 31, 2020: (a) 37 (about 9%) were franchised PDF Stores, and 375 (about 91%) were franchised BFF Stores; and (b) the 37 franchised PDF Stores constituted 100% of the franchised PDF Stores, and the 375 franchised BFF Stores constituted about 87.6% of all the franchised BFF Stores. As of December 31, 2020, the 412 Table 1 Reporting Stores were about 96.9% of the 425 franchised Stores of any category of Store (that is, franchised PDF Stores and franchised BFF Stores).
We separated the Part A Reporting Stores into 4 quartiles based on average Gross Revenues, with the Top Quartile reflecting the results of those with the highest average Gross Revenues for the 2020 Year and the 4th Quartile reflecting those with the lowest average. The 2nd and 3rd Quartiles reflect results of those Big O Tires Stores with the second highest and second lowest average, respectively. The results of the Top 10% of Part A Reporting Stores (45 Stores) and Bottom 10% of Part A Reporting Stores (44 Stores), in terms of Gross Revenues, are also stated.
Of the Part A Reporting Stores included, 193 Stores, or 46.8%, exceeded the overall average annual Gross Revenues of all Part A Reporting Stores of $2,163,378.
B. Gross Revenues and Cost Analysis
Part B of this financial performance representation includes the average Total Income, Gross Profit, and Net Income, in addition to certain expense and margin information for franchised U.S. Big O Tires Stores that operated from January 1, 2020 through December 31, 2020 and met the following criteria: (i) the Store had operated for at least 12 consecutive months as of December 31, 2020, and (ii) the Store furnished financial data to us for the year 2020 with information regarding expenses that we believe to be reliable. There were 425 total operating franchised outlets in the U.S. as of December 31, 2020 and 160 met the criteria (the “Part B Reporting Stores”), representing approximately 37.6% of the total U.S. Stores. There were 7 Stores that closed for various reasons during 2020, none of which were open less than 12 months.
Of the 160 Part B Reporting Stores, as of December 31, 2020: (a) 14 (about 8.75%) were franchised PDF Stores, and 146 (about 91.25%) were franchised BFF Stores; and (b) the 14 franchised PDF Stores constituted 37.8% of all the franchised PDF Stores, and the 146 franchised BFF Stores constituted about 34.1% of all the franchised BFF Stores. As of December 31, 2020, the 160 Table 1 Reporting Stores were about 37.6% of the 425 franchised Stores of any category of Store (that is, franchised PDF Stores and franchised BFF Stores).
We separated the Part B Reporting Stores into 4 quartiles based on average Total Incomes, with the Top Quartile reflecting the results of those with the highest average Total Incomes for the 2020 Year and the 4th Quartile reflecting those with the lowest average.
The average Total Income of all of the Part B Reporting Stores was $2,641,021 and the following averages represent a percentage of income of these Part B Reporting Stores: Cost of Goods Sold, 45.2%; Gross Profit, 54.8%, Total Labor, 25.5%; Total Operating Expense, 48.9%; Net Income From Operations, 7.0%.
The accompanying footnotes are an integral part of these charts and should be read in their entirety for a full understanding of the information contained in them.
(1) Both of the tables show historic financial performance representations. Part A is an historic financial performance representation reflecting the average franchisee Annual Gross Revenues for the Part A Reporting Stores for the most recent calendar year of January 1, 2020 through December 31, 2020. Part B is an historic financial performance representation reflecting the average franchisee Total Income, Gross Profit, and Net Income for the Part B Reporting Stores for the year from January 1, 2020 through December 31, 2020. For purposes of this Item 19, “Gross Revenues” or “Total Income” means the total revenue of a Big O Store, less taxes, refunds and allowances, returns, proceeds from sales of equipment used in a Big O Store not acquired for resale in the ordinary course of business, proceeds from sales of equipment used in a Big O Store not acquired for resale in the ordinary course of business, proceeds from sales to other Big O Stores, amounts received in settlement of claims for loss or damage other than business interruption insurance, sums received for reimbursement of reasonable towing and freight charges, and certain amounts collected for products replaced under warranty. In Part B, “Gross Profit” means the Total Income less the Cost of Goods Sold, and “Net Income From Operations” means the Gross Profit less those “Operating Expenses” identified in the table (total labor, the royalty paid to us, advertising expenses, total occupancy expenses, utilities, and other expenses). See footnote 4 below regarding these expenses. In Part B, we have also disclosed the percentage of the Total Income represented by each
of the line items of expenses, Gross Profit, and Net Income From Operations. Additionally, the tables each disclose the maximum (highest) and the minimum (lowest) figures achieved by a Store in each grouping.
(2) Part A also sets forth the median of annual Gross Revenues for each grouping of Stores, and Part B also sets forth the median of Total Income, Gross Profit, and Net Income for each quartile of Stores. The “median” for purposes of these tables means the results of the Stores falling in the middle of each group in terms of each relevant category of data, or, where there is an even number of Stores, the average of the results of the two Stores falling in the middle of the group.
(3) Each of the tables also indicates the number and percentage of the applicable Stores within each group that meet or exceed the averages stated.
(4) Part B contemplates the Cost of Goods Sold and the expenses identified in the “Total Operating Expenses” portion of the table. The Costs of Goods Sold generally includes the cost of products sold which may include the cost of tires, wheels, automotive fluids, filters, batteries, brake parts, front end parts, shock absorbers and struts, and other goods purchased for resale from Big O or others, but does not include labor costs. The Total Operating Expenses include total labor expenses such as wages paid to technicians only. It does not include wages paid to managers or other employees, payroll taxes, fringe benefits, and worker’s compensation insurance expenses. The “Other Expenses” portion of the Total Operating Expenses generally includes other expenses incurred toward generating income, but excluding the labor, royalty, advertising, occupancy and utility expenses otherwise noted. Expenses vary substantially and are based on particular factors relevant to each Store. Your additional expenses may include wages and reimbursements for yourself, manager salaries, personal expenses, and other fees and expenses. You may incur operating expenses different from those stated above as well as other isolated or recurring expenses. See Items 5, 6, and 7 for fees and other expenses you may incur. Further, the tables do not show any taxes paid by the Stores, including any sales taxes, payroll taxes, and income taxes that may be applicable. Taxes vary widely between geographic areas and from Store to Store. You should conduct an independent investigation of the costs and expenses you will incur in operating your Big O Store. Franchisees or former franchisees listed in Exhibits K-1 and K-2 to this disclosure document may be one source of this information.
(5) We offered substantially the same services to all of the Stores included in each table, which offered substantially the same products and services to the public. There is no assurance that the average sales in the tables in any of these categories will reflect or indicate the sales that you or any other franchisee may achieve or will achieve.
(6) The revenue and income information in the tables was compiled based on actual reported sales by our existing U.S. Big O Store outlets during the applicable periods based on monthly sales reports submitted to us by Big O franchisees for the purpose of computing royalty fees. The expense and Net Income data in Part B was compiled based on the financial data of the Part B Reporting Stores that were submitted to us by franchisees. We do not know if the figures reported to us by franchisees were audited. We have not independently audited or verified the accuracy of these numbers, and we do not know if these numbers have been verified or audited on behalf of the franchisees. Written substantiation of the data used in preparing the information set forth in this Item 19 will be made available to you on reasonable request. We encourage you to consult with your financial advisors in reviewing the information in this Item 19, in particular, in estimating the categories and amount of expenses that may be incurred in establishing and operating a Big O Store. Some outlets have earned these amounts. Your individual results may differ. There is no assurance you will earn as much. Other than the preceding financial performance representation, Big O does not make any financial performance representations. We also do not authorize our employees or representatives to make any such representations either orally or in writing. If you are purchasing an existing outlet, however, we may provide you with the actual records of that outlet. If you receive any other financial performance information or projections of your future income, you should report it to the franchisor’s management by contacting The Franchise Marketing and Sales Support Coordinator, at 4300 TBC Way, Palm Beach Gardens, Florida 33410, and 1-800-321-2446, the Federal Trade Commission, and the appropriate state