Is Cream required to disclose the methodology used to calculate the financial performance data?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
| Section in | ||
|---|---|---|
| Summary | ||
| Agreement | wide basis, consolidated with any other proceeding, or brought on your behalf by an association or agent. | |
| Franchise Agreement | Subject to state law and your obligation to arbitrate, you must | |
| – Section 17.H | commence actions in the court nearest to our or, as applicable, our successor’s or assign’s then-current principal place of business (currently, Columbus, Ohio). | |
| Area Development | Subject to state law and your obligation to arbitrate, you must | |
| Agreement – Section | commence actions in the court nearest to our or, as applicable, our | |
| 7.G | successor’s or assign’s then-current principal place of business (currently, Columbus, Ohio). | |
| Franchise Agreement | Except for the Federal Arbitration Act and other federal law, the | |
| – Section 17.G | laws of the state of Ohio govern, without regard to its conflict of laws rules, except that any state law regulating the offer or sale of franchises or governing the relationship of a franchisor and its franchisee will not apply unless its jurisdictional requirements are met independently from the Franchise Agreement’s terms (subject to state law). | |
| Area Development | Except for the Federal Arbitration Act and other federal law, the | |
| Agreement – Section | laws of the state of Ohio govern, without regard to its conflict of | |
| 7.F | laws rules, except that any state law regulating the offer or sale of franchises or governing the relationship of a franchisor and its franchisee will not apply unless its jurisdictional requirements are met independently from the Area Development Agreement’s terms (subject to state law). | |
| 2024 Calendar Year | Top 25% Net Profit | |
| 21 | ||
| Annual Net Sales (1) | $1,395,330 $1,998,011 $1,026,767 | |
| Annual COGS and Profit Margin | ||
| Average | $349,662 | |
| COGS (2) | ||
| Gross Profit | $1,045,668 | |
| ($) (3) | ||
| Gross Margin | 74.9% | |
| (%) (3) | ||
| Annual Net Profit | ||
| Direct Labor | $284,554 | |
| (4) | ||
| Occupancy (5) | ||
| Supplies (6) | ||
| Credit Card | $40,916 | |
| Fees (7) | ||
| Partnership | $18,871 | |
| Fees (8) | ||
| Repairs and | $30,646 | |
| Maintenance | ||
| (9) | ||
| Other Costs | $37,358 | |
| (10) | ||
| Total | $626,927 | |
| Operating | ||
| Expenses (11) | - 1. Net Sales is calculated in the same manner as Net Sales under the Franchise Agreement, and includes all revenue derived from operating the Item 19 Shops, whether from cash, check, vouchers, tickets, or other comparable forms of payment, credit and debit card, barter exchange, trade credit, or other credit transactions, net of authorized discounts (i.e., employee discounts, free birthday scoops, and good neighbor discounts and loyalty rewards). Net Sales excludes: (i) all federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority, and (ii) tips and gratuities collected for employees of the Shops. Payments from online group-bought deals, gift certificate or gift card programs, or other similar programs were included in Net Sales upon redemption. In the top 25% quartile, 8 Item 19 Shops (38%) had annual Net Sales that met or exceeded the average annual Net Sales and $1,349,253 was the median annual Net Sales. In the upper mid 25% quartile, 8 Item 19 Shops (38%) had annual Net Sales that met or exceeded the average annual Net Sales and $966,583 was the median annual Net Sales. In the lower mid 25% quartile, 9 Item 19 Shops (43%) had annual Net Sales that met or exceeded the average annual Net Sales and $727,198 was the median annual Net Sales. In the bottom 25% quartile, 9 Item 19 Shops (45%) had annual Net Sales that met or exceeded the average annual Net Sales and $829,713 was the median annual Net Sales. Out of all Item 19 Shops, 34 (41%) had annual Net Sales that met or exceeded the average annual Net Sales and $933,444 was the median annual Net Sales. |
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 51–57)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, the franchisor does provide details on how they calculate the financial performance data presented in Item 19. Cream outlines the specific formulas and definitions used for key metrics such as Net Sales, COGS (Cost of Goods Sold), Gross Profit, Direct Labor, Total Operating Expenses, and Net Profit. These definitions clarify what is included and excluded from each calculation, offering transparency into the brand's financial reporting. For example, Net Sales includes revenue from various payment methods but excludes sales taxes and tips, while COGS includes the landed cost of ice cream products and other items.
Cream further explains how certain costs are treated, particularly those related to purchases from their parent company. For products sourced from their parent, Cream imputes the price that would have been charged to the Item 19 Shops had they not been company-owned. This imputation provides a standardized basis for calculating costs across all shops, regardless of ownership structure. Additionally, the FDD specifies that certain expenses, such as interest, financing costs, depreciation, amortization, income taxes, and a Technology Fee, are not included in the calculation of Other Costs.
For a prospective Cream franchisee, this level of detail is highly valuable. Understanding the precise methodology behind the financial performance representations allows for a more informed assessment of the potential profitability of a franchise. By examining the components of Net Sales, COGS, and other key metrics, franchisees can better evaluate the financial viability of the business and compare it against their own projections and assumptions. Furthermore, the availability of written substantiation for the financial performance representation upon reasonable request provides an additional layer of assurance and transparency.