How does Carvel recognize breakage income from unredeemed gift cards?

According to Carvel's 2025 Franchise Disclosure Document, the company recognizes breakage income from gift cards. This income is recognized in proportion to actual gift card redemptions, and the calculation is based on historical redemption rates.

For a prospective Carvel franchisee, this means that Carvel accounts for the revenue generated from gift cards that are purchased but never fully redeemed. Instead of recognizing the revenue immediately upon the sale of the gift card, Carvel defers the revenue recognition. As customers redeem their gift cards, Carvel recognizes a portion of the revenue. The portion recognized is determined by looking at historical data to estimate how likely it is that a gift card will be fully redeemed. Any amount remaining on gift cards that are statistically unlikely to be redeemed is recognized as income.

This accounting practice provides a more accurate representation of Carvel's financial performance. It ensures that revenue is only recognized when it is earned, which is when the gift card is actually used to purchase Carvel products. This approach is fairly standard in the franchise industry, as it aligns revenue recognition with actual redemption patterns.