Understanding Item 19 Financial Performance Representations

What Is Item 19?

Item 19 of the FDD allows franchisors to make "financial performance representations" - claims about how much money franchisees can expect to make. It is the only place in the FDD where the franchisor can legally share earnings data.

**Important:** Only about 30% to 40% of franchisors provide Item 19 data. Brands that do are generally more transparent.

Types of Item 19 Disclosures

**Gross Revenue / Sales:** The most common disclosure. Shows average or median annual revenue per location. This tells you the top line but nothing about profitability.

**Cost of Goods Sold (COGS):** Some brands break out product/supply costs as a percentage of revenue. Critical for restaurant and retail franchises.

**Operating Expenses:** Labor, rent, utilities, insurance, and other costs. Rarely disclosed in full, but some brands provide ranges.

**Net Income / EBITDA:** The gold standard. Very few brands disclose bottom-line profitability, but when they do, it is extremely valuable.

**Same-Store Sales Growth:** Year-over-year revenue growth for locations open 12+ months. Shows whether the brand is growing or declining organically.

How to Evaluate Item 19 Data

1. **Mean vs. Median:** Median is more useful than mean because it is not distorted by outlier locations. A few high-performing units can make averages look deceptively attractive.

1. **Sample Size:** Does the data cover all locations or just a subset? A brand with 500 locations that only discloses data for 50 "representative" units may be cherry-picking.

1. **Age of Locations:** Are the results from mature locations (open 3+ years) or does the data include new locations still ramping up?

1. **Geographic Mix:** Results from high-cost urban markets may not apply to your suburban territory.

1. **Company-Owned vs. Franchised:** Some brands report results from company-owned locations only, which may have different economics than franchised units.

Questions to Ask About Item 19

• What percentage of total units does this data represent?
• Are these figures audited?
• How has this data changed over the past 3 years?
• Does this include all revenue streams or just food/product sales?
• What is the distribution? How many units are below the median?

Red Flags in Item 19

• Only disclosing "selected" or "representative" locations
• Showing only gross revenue without any cost data
• Data that is more than 2 years old
• Significant gap between company-owned and franchised unit economics
• No clear methodology explaining how the numbers were calculated