Creative Learning Franchise Business Continues Exponential Growth

Creative Learning Corporation (CLCN – $1.95), operating under the trade names of Bricks 4 Kidz, Challenge Island and Sew Fun Studios offers educational and enrichment programs to children ages 3-12+.

Through a unique franchise business model that includes a proprietary curriculum and marketing strategies, the Company provides a wide variety of programs designed to enhance students’ problem solving and critical thinking skills.

It’s amazing how fast Creative Learning’s number of franchises continues to grow. Early 2014, Bricks 4 Kidz had 440 franchises and was active in 20 countries. Now, nine months later, CLCN just awarded its 614th franchise, a rise of 40%, and is already active in over 30 countries. This growth is also reflected in the Company’s financials.

Operations

Bricks 4 Kidz offers programs designed to teach principles of engineering, architecture and physics to children ages 3-12+ using LEGO bricks. Bricks 4 Kidz provides classes, both in school and after school, special events programs and day camps that are designed to enhance and enrich the traditional school curriculum, trigger young children’s lively imaginations and build self-confidence.

Bricks 4 Kidz’s programs foster creativity and provide a unique atmosphere for students to develop problem solving and critical thinking skills by designing and building machines, catapults, pyramids, race cars, buildings and numerous other systems and devices.

Challenge Island provides unique challenge-based programs designed to foster critical and creative thinking skills, problem solving methodology, and core STEM (Science, Technology, Engineering, Mathematics) principles in children ages 3-13+. Challenge Island began selling franchises in the 2013 fiscal year and as of June 30, 2014 it had sold 26 franchises in the United States and in one foreign country.

In the Summer of 2014, Creative Learning launched its third franchise concept called Sew Fun Studios, which introduces the art of sewing to children and adults by utilizing basic and advanced sewing techniques. Sew Fun Studios has been operating for over five years in Charlotte, NC under the trade name Sew Fun Parties. When Creative Learning Corporation acquired the rights to franchise Sew Fun, the Company changed the name to Sew Fun Studios.

It’s still too early to tell how successful this third franchise concept will become, but Brian Pappas, CEO of Creative Learning Corporation stated, “We are all very excited with the launch of Sew Fun Studios. With no national competition and only a handful of moms and pops out there, Sew Fun Studios will be in a great position to aggressively develop this unique franchise concept. Such economic conditions are reminiscent of the early days of Bricks 4 Kidz.”

Financials

Creative Learning sells franchises both domestically and internationally. International sales can be a single franchise or a Master Franchise, where the Master Franchisee operates a franchise, but is also able to develop, sell and manage sub-franchises.

A franchisee pays a one-time, non-refundable franchise fee upon the execution of the franchise agreement. There can be variations on the franchise fees depending on the size or territories being purchased, and other factors of the territory. The typical sized, domestic, single territory franchise fee is $25,900, while a Master Franchise sells for about $80,000. International franchise fees also vary and are set relative to the potential of the franchised territories.

Next to the one-time franchise fee, domestic and international franchisees are required to pay Creative Learning a royalty fee of 7%. In addition, the Company receives a percentage of royalty payments received by Master Franchisees from their sub-franchisees.

	Three Months Ended June 30		Nine Months Ended June 30
Amounts in $000’s	2014	2013	2014	2013
Net Sales	2,113	1,586	5,990	3,476
Net Income*	318	565	962	650
Earnings Per Share	0.03	0.05	0.08	0.06
Most important income statement data for the quarters and nine months ending June 30, 2014 and June 30, 2013. Source: Company Press Release. *Note: For the three months ended June 30, 2014 and 2013, the Company recorded a tax provision of $199,167 and $-0- respectively. For the nine months ended June 30, 2014 and 2013, the Company recorded a tax provision of $588,016 and $-0- respectively.

Brian Pappas commented, “We are pleased with our continued strong top line revenue growth, which reflects the rapid pace at which we are adding new franchises. Our recurring royalty fees increased over 80% compared to the same period last year. We attribute this success to our highly differentiated business model focusing on the underserved market of educational and enrichment programs. Specifically, there is growing interest in after-school and other programs that emphasize creativity and problem solving over standardized testing.”

Mr. Pappas concluded, “We have developed a scalable business model with minimal capex requirements and high margin, recurring revenue. Moreover, we have consistently generated very high ROI from our advertising and lead generation initiatives. We recently stepped up our advertising initiatives targeting new franchisees, which we believe will help drive our global expansion.”

“We also increased our personnel and certain overhead, which will allow us to support our continued growth including the launch of Sew Fun Studios. We have also invested considerable resources on the international front. As a result, we expect to add several large international franchisees before year-end. Despite these investments in the business, we achieved profitability and continue to generate solid cash flow. At the same time, we maintained a strong balance sheet with over $3 million cash.”

Conclusion

As the number of franchises increases, Creative Learning’s fees and royalties will continue to grow exponentially. The Company targets 650 franchises by the end of this calendar year. And if the Bricks 4 Kidz success can be repeated with Challenge Island and Sew Fun Studio, we’re in for an even greater ride.

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