What revenue sources are included in Carvel's franchise revenue?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
s recognized in accordance with a five-step revenue model, as follows: identifying the contract with the customer; identifying the performance obligations in the contract; determining the transaction price; allocating the transaction price to the performance obligations; and recognizing revenue when (or as) the performance obligation is satisfied. The Company determined that the franchise right granted for each individual SBR within an arrangement represents a single performance obligation. Therefore, all consideration within the contract is allocated to the franchise right and recognized over the term of the franchise agreement.
Franchise revenues consists of revenues from franchising activities and are recognized based on the terms of the underlying agreements.
Development fees are recorded as deferred franchise revenue when received and are recognized as revenue on a straight-line basis over the term of each underlying franchise agreement satisfying the development obligation, commencing when the SBR is opened.
Franchise fees are recorded as deferred revenue when received and are recognized as revenue on a straight-line basis over the term of each respective franchise agreement, commencing when the SBR is opened.
Certain franchisees are required to purchase ice cream mix from a certain Franchising Entity's approved distributors, who in turn source the ice cream mix from that Franchising Entity's approved manufacturers.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, the franchise revenues consist of revenues from franchising activities and are recognized based on the terms of the underlying agreements. These revenues are derived from several sources, including franchise fees, development fees, ice cream mix sales, rental revenues, and advertising funds.
Franchise fees and development fees are initially recorded as deferred revenue and are then recognized as revenue over the term of the franchise agreement, starting when the Shoppe, Bakery, or Restaurant (SBR) opens. For certain franchisees, Carvel requires the purchase of ice cream mix from approved distributors, who source it from approved manufacturers. Revenue from these ice cream mix sales is recognized upon the sale, based on agreements between the manufacturers, distributors, and franchisees.
Rental revenues include income from properties leased and subleased to franchisees and other third parties. Base rental revenue is recognized on a straight-line basis over the lease term, while contingent rental revenue is recognized as it is earned. Additionally, revenues from advertising funds are recognized as they are earned by Carvel's subsidiaries.
In summary, Carvel generates revenue through various franchising activities, including initial fees, ongoing royalties from ice cream mix sales, rental income from leased properties, and contributions to advertising funds. These diverse revenue streams reflect the multifaceted nature of the franchise relationship and contribute to Carvel's overall financial performance.