For Carvel franchises, what sales are specifically excluded from the definition of 'Net Sales'?

According to Carvel's 2025 Franchise Disclosure Document, 'Net Sales' for the purpose of calculating royalties and other fees excludes several specific categories of transactions. These exclusions directly impact the franchisee's financial obligations to Carvel, as royalties and advertising fees are often calculated as a percentage of Net Sales. Understanding these exclusions is crucial for accurately forecasting revenue and expenses.

Specifically, Net Sales do not include the initial sales or reloading of gift cards, which means Carvel franchisees do not pay royalties on the revenue generated from gift card sales until those cards are redeemed for products. Discounts offered to customers are also excluded, reducing the royalty base when promotional pricing is used. Additionally, sales of food or merchandise for which refunds have been made in good faith are not included in Net Sales, acknowledging that franchisees should not pay royalties on revenue that is later returned to customers. The discounted portion of employee meals is also excluded, which is a common practice to avoid franchisees paying royalties on subsidized employee benefits.

Furthermore, sales, meals, use, or excise taxes imposed by a governmental authority and collected from customers are excluded from Net Sales, provided that the tax amount is added to the selling price or absorbed therein and is actually paid to the governmental authority. This ensures that franchisees are not paying royalties on tax revenue that is simply being passed through to the government. The sale of equipment used in the operation of the Shoppe is also excluded, recognizing that these are typically one-time transactions and not part of the ongoing sales of Carvel products. Finally, tips received by employees are excluded from Net Sales, which aligns with industry standards as tips are considered compensation for service and not revenue for the business itself. These exclusions provide clarity and fairness in calculating the financial obligations of Carvel franchisees.