10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 1, 2023

OR

 ☐        Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to            

Commission File Number 001-35588

Franchise Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-3561876
(State of incorporation)	(IRS employer identification no.)

109 Innovation Court, Suite J

Delaware, Ohio 43015

(Address of principal executive offices)

(740) 363-2222

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	FRG	Nasdaq Global Market
7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share	FRGAP	Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.01 value per share, as of August 3, 2023 was 35,191,461 shares.

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Form 10-Q for the Quarterly Period Ended July 1, 2023

Table of Contents

		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		39

PART I. FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS (UNAUDITED)

1

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

	Three Months Ended				Six Months Ended
(In thousands, except share count and per share data)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Revenues:
Product	$	916,112	$	952,009	$	1,892,920	$	1,931,173
Service and other	115,501		135,648		236,069		283,929
Rental	7,073		7,341		14,518		15,365
Total revenues	1,038,686		1,094,998		2,143,507		2,230,467
Operating expenses:
Cost of revenue:
Product	621,482		600,780		1,278,386		1,217,364
Service and other	8,634		8,732		18,213		17,395
Rental	2,507		2,741		5,133		5,603
Total cost of revenue	632,623		612,253		1,301,732		1,240,362
Selling, general, and administrative expenses	383,563		405,639		770,804		782,633
Goodwill impairment	—		—		75,000		—
Total operating expenses	1,016,186		1,017,892		2,147,536		2,022,995
Income (loss) from operations	22,500		77,106		(4,029)		207,472
Other expense:
Bargain purchase gain	6		3,581		6		3,514
Gain on sale-leaseback transactions, net	—		49,854		—		49,854
Other, net	(3,783)		12,853		(5,617)		(9,122)
Interest expense, net	(83,364)		(88,839)		(170,493)		(181,167)
Income (loss) from operations before income taxes	(64,641)		54,555		(180,133)		70,551
Income tax expense (benefit)	(13,845)		13,572		(21,020)		17,250
Net income (loss) attributable to Franchise Group, Inc.	(50,796)		40,983		(159,113)		53,301
Other comprehensive income (loss)	—		—		—		—
Comprehensive income (loss)	$	(50,796)	$	40,983	$	(159,113)	$	53,301
Net income (loss) per share:
Basic	$	(1.50)	$	0.96	$	(4.66)	$	1.22
Diluted	(1.50)		0.94		(4.66)		1.19
Weighted-average shares outstanding:
Basic	35,177,146		40,356,299		35,089,660		40,331,855
Diluted	35,177,146		41,126,605		35,089,660		41,148,668

See accompanying notes to condensed consolidated financial statements.

2

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share count and per share data)	July 1, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	106,264	$	80,783
Current receivables, net of allowance for credit losses of $(8,204) and $(4,106), respectively	256,003		170,162
Current securitized receivables, net of allowance for credit losses of $(65,519) and $(57,095), respectively	191,826		292,913
Inventories, net	746,753		736,841
Current assets held for sale	7,633		8,528
Other current assets	28,238		27,272
Total current assets	1,336,717		1,316,499
Property, plant, and equipment, net	238,922		223,718
Non-current receivables, net of allowance for credit losses of $(1,070) and $(892), respectively	10,808		11,735
Non-current securitized receivables, net of allowance for credit losses of $(8,816) and $(7,705), respectively	25,812		39,527
Goodwill	663,481		737,402
Intangible assets, net	111,432		116,799
Tradenames	222,703		222,703
Operating lease right-of-use assets	890,611		890,949
Investment in equity securities	5,977		11,587
Other non-current assets	65,398		59,493
Total assets	$	3,571,861	$	3,630,412
Liabilities and Stockholders’ Equity
Current liabilities:
Current installments of long-term obligations, net	$	13,192	$	6,935
Current installments of debt secured by accounts receivable, net	341,144		340,021
Current operating lease liabilities	179,250		179,519
Accounts payable and accrued expenses	407,543		376,895
Other current liabilities	34,827		40,541
Total current liabilities	975,956		943,911
Long-term obligations, excluding current installments	1,526,605		1,374,479
Non-current liabilities debt secured by accounts receivable, net	44,423		107,448
Non-current operating lease liabilities	729,870		720,474
Other non-current liabilities	69,576		62,720
Total liabilities	3,346,430		3,209,032
Stockholders’ equity:
Common stock, $0.01 par value per share, 180,000,000 shares authorized, 35,186,943 and 34,925,733 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively	352		349
Preferred stock, $0.01 par value per share, 20,000,000 shares authorized, and 4,541,125 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively	45		45
Additional paid-in capital	310,654		311,069
Retained earnings (deficit)	(85,620)		109,917
Total equity	225,431		421,380
Total liabilities and equity	$	3,571,861	$	3,630,412

See accompanying notes to condensed consolidated financial statements.

3

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three Months Ended July 1, 2023
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Retained earnings (deficit)		Total Franchise Group equity
Balance at April 1, 2023	35,149	$	351	4,541	$	45	$	310,160	$	(32,909)	$	277,647
Net loss	—	—		—	—		—		(50,796)		(50,796)
Exercise of stock options	33	1		—	—		360		—		361
Stock-based compensation, net	5	—		—	—		134		—		134
Common dividend declared ($0.625 per share)	—	—		—	—		—		214		214
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		(2,129)		(2,129)
Balance at July 1, 2023	35,187	$	352	4,541	$	45	$	310,654	$	(85,620)	$	225,431

	Six Months Ended July 1, 2023
(In Thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Retained earnings		Total Franchise Group equity
Balance at December 31, 2022	34,926	$	349	4,541	$	45	$	311,069	$	109,917	$	421,380
Cumulative effect of adopted accounting standards, net	—	—		—	—		—		(9,978)		(9,978)
Net loss	—	—		—	—		—		(159,113)		(159,113)
Exercise of stock options	48	1		—	—		490		—		491
Stock-based compensation expense, net	213	2		—	—		(905)		—		(903)
Common dividend declared ($0.625 per share)	—	—		—	—		—		(22,189)		(22,189)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		(4,257)		(4,257)
Balance at July 1, 2023	35,187	$	352	4,541	$	45	$	310,654	$	(85,620)	$	225,431

4

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three Months Ended June 25, 2022
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Retained earnings		Total Franchise Group equity
Balance at March 26, 2022	40,354	$	404	4,541	$	45	$	480,628	$	270,609	$	751,686
Net income	—	—		—	—		—		40,983		40,983
Stock-based compensation, net	5	—		—	—		5,431		—		5,431
Common dividend declared ($0.625 per share)	—	—		—	—		—		(27,117)		(27,117)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		(2,129)		(2,129)
Balance at June 25, 2022	40,359	$	404	4,541	$	45	$	486,059	$	282,346	$	768,854

	Six Months Ended June 25, 2022
(In thousands)	Common stock shares	Common stock		Preferred stock shares	Preferred stock		Additional paid-in-capital		Retained earnings		Total Franchise Group equity
Balance at December 25, 2021	40,297	$	403	4,541	$	45	$	475,396	$	286,987	$	762,831
Net income	—	—		—	—		—		53,301		53,301
Exercise of stock options	15	—		—	—		180		—		180
Stock-based compensation expense, net	47	1		—	—		10,483		—		10,484
Common dividend declared ($0.625 per share)	—	—		—	—		—		(53,685)		(53,685)
Preferred dividend declared ($0.469 per share)	—	—		—	—		—		(4,257)		(4,257)
Balance at June 25, 2022	40,359	$	404	4,541	$	45	$	486,059	$	282,346	$	768,854

See accompanying notes to condensed consolidated financial statements.

5

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Operating Activities
Net income (loss)	$	(159,113)	$	53,301
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses for accounts receivable	45,743		56,840
Depreciation, amortization, and impairment charges	44,282		42,236
Goodwill impairment	75,000		—
Amortization of deferred financing costs	5,788		12,032
Securitized financing costs	48,630		59,618
Stock-based compensation expense	2,829		10,853
Change in fair value of investment	5,611		10,855
Gain on bargain purchases and sales of Company-owned stores	(42)		(55,883)
Other non-cash items	262		(2,182)
Changes in operating assets and liabilities	(30,905)		(238,903)
Net cash provided by (used in) operating activities	38,085		(51,233)
Investing Activities
Purchases of property, plant, and equipment	(28,760)		(21,809)
Proceeds from sale of property, plant, and equipment	3,379		240,558
Acquisition of business, net of cash and restricted cash acquired	(3,682)		(3,754)
Payments received on operating loans to franchisees and dealers	—		1,000
Net cash provided by (used in) investing activities	(29,063)		215,995
Financing Activities
Dividends paid	(49,806)		(54,665)
Issuance of long-term debt and other obligations	538,000		88,500
Repayment of long-term debt and other obligations	(389,389)		(358,172)
Proceeds from secured debt obligations	133,398		130,556
Repayment of secured debt obligations	(192,030)		(166,653)
Principal payments of finance lease obligations	(3,180)		(1,383)
Payment for debt issue costs	(17,393)		(431)
Cash paid for taxes on exercises/vesting of stock-based compensation, net	(3,240)		(190)
Net cash provided by (used in) financing activities	16,360		(362,438)
Net increase (decrease) in cash equivalents and restricted cash	25,382		(197,676)
Cash, cash equivalents and restricted cash at beginning of period	81,250		292,714
Cash, cash equivalents and restricted cash at end of period	$	106,632	$	95,038
Supplemental Cash Flow Disclosure
Cash paid for taxes, net of refunds	$	4,048	$	17,842
Cash paid for interest	67,075		42,013
Cash paid for interest on secured debt	43,414		48,506
Accrued capital expenditures	2,461		2,751
Capital expenditures funded by finance lease liabilities	14,147		—

See accompanying notes to condensed consolidated financial statements.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Statements of Cash Flows.

(In thousands)	July 1, 2023		June 25, 2022
Cash and cash equivalents	$	106,264	$	95,038
Restricted cash included in other non-current assets	368		—
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	106,632	$	95,038

Amounts included in other non-current assets represent those required to be set aside by a contractual agreement with an insurer for the payment of specific workers’ compensation claims.

6

FRANCHISE GROUP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Basis of Presentation

Unless otherwise stated, references to the “Company,” “we,“ “us,” and “our” in this Quarterly Report on Form 10-Q (this “Quarterly Report”) refer to Franchise Group, Inc. and its direct and indirect subsidiaries on a consolidated basis. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2022 that was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023 (the “Form 10-K”).

In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. The December 31, 2022 balance sheet information was derived from the audited financial statements as of that date.

Reclassifications

Certain prior year amounts within the footnotes have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, “Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which changes how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard replaces the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables.

Effective January 1, 2023, the Company adopted ASU 2016-13 and applied a cumulative-effect adjustment to retained earnings. The Company has reviewed its entire portfolio of assets recognized on the balance sheet as of December 31, 2022 and identified customer receivables and securitized receivables as the materially impacted assets within the scope of ASC 326. Upon adoption of ASC 326 the Company recorded a net decrease to retained earnings of $10.0 million as of January 1, 2023. Prior period amounts were not adjusted and will continue to be reported under the previous accounting standards.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as a result of the adoption of ASC 326 were as follows:

	Impact of Adoption of ASC 326
(In thousands)	Balance at December 31, 2022		Adjustments due to ASC 326		Balance at January 1, 2023
Assets
Current receivables, net	$	170,162	$	(654)	$	169,508
Current securitized receivables, net	292,913		(11,619)		281,294
Non-current securitized receivables, net	39,527		(1,568)		37,959
Deferred income taxes	38,528		3,863		42,391
Stockholders’ Equity
Retained earnings	$	109,917	$	(9,978)	$	99,939

7

(2) Acquisitions and Business Combinations

On May 10, 2023, the Company announced that it has entered into a definitive agreement and plan of merger with Freedom VCM, Inc., a Delaware Corporation (“Parent”) and Freedom VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the “Merger Agreement”), pursuant to which members of the senior management team of the Company led by Brian Kahn, the Company’s Chief Executive Officer (collectively with affiliates and related parties of the senior management team, the “Management Group”), have agreed to acquire approximately 64.0% of the Company’s issued and outstanding common stock that the Management Group does not presently own or control (the “Proposed Merger”). Under the terms of the Proposed Merger, the Company’s common stockholders, other than the Management Group, are entitled to receive $30.00 in cash for each share of the Company’s common stock they hold. On July 19, 2023, the Company announced a notice of redemption (the “Redemption”) for all outstanding shares of its 7.50% Series A Cumulative Perpetual Preferred Stock in connection with the Merger Agreement. The Company's preferred stock will be redeemed in cash at a redemption price equal to $25.00 per share plus any accrued and unpaid dividends. The Redemption is contingent upon the Company’s successful completion of the Proposed Merger and, in the event the Proposed Merger does not occur and the Merger Agreement is terminated in accordance with its terms, the notice of redemption will be deemed rescinded and the Redemption will not occur.

The Proposed Merger is anticipated to close in the second half of 2023, subject to satisfaction or waiver of the closing conditions, including approval by regulatory authorities and the Company’s stockholders, including approval by a majority of the shares of common stock of the Company not owned or controlled by the Management Group. Upon completion of the Proposed Merger, the Company will become a private company and will no longer be publicly listed or traded on Nasdaq.

Additional information about the Merger Agreement and the Proposed Merger is set forth in the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on July 14, 2023.

Treatment of Company Equity Awards in Connection with Proposed Merger

Treatment of Stock Options. At the effective time of the Proposed Merger (the “Effective Time”), any outstanding stock options will exercise and entitle the holder of such stock option to receive, without interest, an amount in cash equal to the product of multiplying (A) the number of shares of the Company’s common stock subject to such stock option as of immediately prior to the Effective Time and (B) the excess, if any, of the per share merger consideration over the exercise price per share of the Company’s common stock subject to such stock option.

Treatment of RSUs. At the Effective Time, any outstanding RSU will vest and entitle the holder of such RSU to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of the Company’s common stock subject to such RSU immediately prior to the Effective Time and (B) the per share merger consideration, therefore, stock-based compensation will cease at that time.

Treatment of PRSUs. At the Effective Time, any outstanding PRSU will vest and entitle the holder of such PRSU to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of the Company’s common stock subject to such PRSU immediately prior to the Effective Time and (B) the per share merger consideration, therefore, stock-based compensation will cease at that time.

Treatment of MPRSUs. At the Effective Time, each outstanding MPRSU will, automatically and without any action on the part of the holder thereof, be cancelled for no consideration, payment or right to consideration or payment, therefore, stock-based compensation will cease at that time.

2019 Omnibus Incentive Plan. The Company expects to terminate the 2019 Omnibus Incentive Plan at the Effective Time of the Proposed Merger.

The Company continually looks to diversify and grow its portfolio of brands through acquisitions. On February 28, 2023, the Company’s Pet Supplies Plus segment acquired 20 stores through bankruptcy proceedings of a third party for approximately $3.7 million. The components of the preliminary purchase price allocation are not presented herein due to the immateriality of the transaction to the Company overall. The Company’s Pet Supplies Plus segment subsequently franchised 12 of the 20 acquired stores.

8

(3) Accounts and Notes Receivable

Current and non-current receivables as of July 1, 2023 and December 31, 2022 are presented in the Condensed Consolidated Balance Sheets as follows:

(In thousands)	July 1, 2023		December 31, 2022
Trade accounts receivable	$	33,924	$	40,165
Customer accounts receivable	128,004		56,639
Franchisee accounts receivable	51,969		46,778
Notes and interest receivable	2,064		2,361
Income tax receivable	48,246		28,325
Allowance for credit losses	(8,204)		(4,106)
Current receivables, net	256,003		170,162
Notes receivable, non-current	11,878		12,627
Allowance for credit losses, non-current	(1,070)		(892)
Non-current receivables, net	10,808		11,735
Total receivables	$	266,811	$	181,897

Allowance for Credit Losses

The adequacy of the allowance for credit losses is assessed on a quarterly basis and adjusted as deemed necessary. Receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for credit losses. Expected credit losses for trade and franchisee accounts receivable are immaterial. Notes receivable are due from the Company’s franchisees and are collateralized by the underlying franchise. The debtors’ ability to repay the notes is dependent upon both the performance of the franchisee’s industry as a whole and the individual franchise areas.

Activity in the allowance for credit losses for trade, customer, and franchisee accounts receivable and notes receivable for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	4,998	$	6,192
Cumulative effect of adopted accounting standards	654		—
Provision for credit loss expense (benefit)	3,683		10,224
Write-offs, net of recoveries	(61)		(109)
Balance at end of period	$	9,274	$	16,307

Past due amounts are primarily attributable to trade and franchisee accounts receivable that have been generated over the past year and are past due by 1-30 days. The delinquency distribution of accounts and notes receivable past due at July 1, 2023 were as follows:

	July 1, 2023
(In thousands)	Past due		Current		Total receivables
Accounts receivable	$	27,993	$	185,904	$	213,897
Notes and interest receivable	—		13,942		13,942
Total accounts, notes and interest receivable	$	27,993	$	199,846	$	227,839

9

(4) Securitized Accounts Receivable

In order to monetize its customer credit receivables portfolio, the Company’s Badcock Home Furniture & more (“Badcock”) segment sells beneficial interests in customer revolving lines of credit pursuant to securitization transactions. The Company securitized an additional $133.4 million of its customer credit receivables portfolio during the six months ended July 1, 2023. For additional details regarding these securitizations, refer to “Note 5 – Securitized Accounts Receivable” in the Form 10-K.

When securitized receivables are delinquent for approximately one year, the estimated uncollectible amount from the customer is written off and the corresponding securitized accounts receivable is reduced. Financial instruments that could potentially subject the Company to concentrations of credit risk consist of accounts receivable with its customers. The Company manages such risk by managing the customer accounts receivable portfolio using delinquency as a key credit quality indicator. Management believes the allowance is adequate to cover the Company’s credit loss exposure. Due to their non-recourse nature, the Company will record a gain on extinguishment for any debt secured by uncollectible accounts receivable in the future when the debt meets the extinguishment requirements in accordance with ASC 470, “Debt”.

Activity in the allowance for credit losses on securitized accounts for the six months ended July 1, 2023 and June 25, 2022 was as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	64,800	$	—
Cumulative effect of adopted accounting standards	13,187		—
Provision for credit loss expense	42,036		46,560
Write-offs, net of recoveries	(45,688)		(32,293)
Balance at end of period	$	74,335	$	14,267

Current amounts include receivables for customers who have made a payment in the past 30 days. Any customers who have not made a required payment within the last 30 days are considered past due. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by year of origination as of July 1, 2023:

Delinquency Bucket	2023		2022		2021		Prior		Total
(in thousands)
Current	$	55,147	$	106,332	$	12,030	$	4,243	$	177,752
1-30	6,740		19,626		3,752		1,298		31,416
31-60	2,376		7,626		2,369		951		13,322
61-90	1,580		5,899		2,069		812		10,360
91+	2,314		43,742		18,929		7,303		72,288
Total	$	68,157	$	183,225	$	39,149	$	14,607	$	305,138

10

Servicing revenue, interest income and interest expense generated from securitized receivables for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Securitization servicing revenue	$	6,291	$	4,972
Interest income from securitization1	56,986		114,156
Interest expense, debt secured by accounts receivable	(88,144)		(128,208)

1 Includes interest income from Badcock customer receivables (refer to “Note 3 – Accounts and Notes Receivable”) and securitized receivables.

(5) Goodwill and Intangible Assets

The Company performs impairment tests for goodwill as of the end of July of each fiscal year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company’s reporting units below their carrying values. As a result of the Company’s American Freight segment’s underperformance compared to projections for the three months ended April 1, 2023, as well as current macroeconomic conditions, the Company updated its long-term forecasts. The Company performed an interim goodwill impairment quantitative assessment as of April 1, 2023, and based on the results of the analysis, the Company recorded a non-cash goodwill impairment charge of $75.0 million, which was recorded in “Goodwill impairment” in the accompanying Condensed Consolidated Statements of Operations. Other than the American Freight segment’s accumulated goodwill impairment of $70.0 million as of December 31, 2022, no other reporting units had accumulated goodwill impairment losses recorded.

The estimated fair value of the Company’s American Freight reporting unit was calculated using a weighted-average of values determined from an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities. In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of assets included in the reporting unit, estimated remaining lives of those assets, and future expenditures necessary to maintain the assets’ existing service potential. The assumptions in the fair value measurement reflect the current market environment, industry-specific factors and company-specific factors. A change in assumptions used in American Freight’s quantitative analysis (e.g. projected cash flows, discount rates and growth rates) could result in the reporting unit’s estimated fair value being less than the carrying value. If American Freight is unable to achieve its current financial forecast, the Company may be required to record an impairment charge in a future period related to its goodwill. As of July 1, 2023, American Freight’s goodwill totaled $225.8 million.

Changes in the carrying amount of goodwill for the six months ended July 1, 2023 are as follows:

	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy’s		Sylvan		Total
Balance as of December 31, 2022	$	1,277	$	336,791	$	300,829	$	79,099	$	19,406	$	737,402
Acquisitions	—		3,690		—		—		—		3,690
Goodwill impairment	—		—		(75,000)		—		—		(75,000)
Disposals and purchase accounting adjustments	—		(2,611)		—		—		—		(2,611)
Balance as of July 1, 2023	$	1,277	$	337,870	$	225,829	$	79,099	$	19,406	$	663,481

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Components of intangible assets as of July 1, 2023 and December 31, 2022 were as follows:

	July 1, 2023
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(17,995)	$	78,010
Customer contracts	42,578		(10,752)		31,826
Other intangible assets	2,583		(987)		1,596
Total intangible assets	$	141,166	$	(29,734)	$	111,432

	December 31, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(14,348)	$	81,657
Customer contracts	42,484		(8,878)		33,606
Other intangible assets	2,313		(777)		1,536
Total intangible assets	$	140,802	$	(24,003)	$	116,799

(6) Revenue

For details regarding the principal activities from which the Company generates its revenue, refer to “Note 1 – Description of Business and Summary of Significant Accounting Policies Presentation” in the Form 10-K. For more detailed information regarding reportable segments, refer to “Note 13 – Segments” in this Quarterly Report. The following represents the disaggregated revenue by reportable segments for the three months ended July 1, 2023:

	Three Months Ended
	July 1, 2023
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy’s		Sylvan		Consolidated
Retail sales	$	303,809	$	162,310	$	123,450	$	171,104	$	565	$	5	$	761,243
Wholesale sales	611		150,293		—		3,965		—		—		154,869
Total product revenue	304,420		312,603		123,450		175,069		565		5		916,112
Royalties and advertising fees	201		11,568		—		806		4,657		11,388		28,620
Financing revenue	—		—		659		11,511		—		—		12,170
Interest income	—		78		20,478		177		—		—		20,733
Interest income from amortization of original purchase discount	—		—		6,032		—		—		—		6,032
Warranty and damage revenue	—		—		11,753		8,667		1,498		—		21,918
Other revenues	106		8,534		9,849		7,197		26		316		26,028
Total service revenue	307		20,180		48,771		28,358		6,181		11,704		115,501
Rental revenue, net	—		—		—		—		7,073		—		7,073
Total rental revenue	—		—		—		—		7,073		—		7,073
Total revenue	$	304,727	$	332,783	$	172,221	$	203,427	$	13,819	$	11,709	$	1,038,686

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The following represents the disaggregated revenue by reportable segments for the six months ended July 1, 2023:

	Six Months Ended
	July 1, 2023
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	624,406	$	325,569	$	255,706	$	373,253	$	1,289	$	13	$	1,580,236
Wholesale sales	1,393		302,275		—		9,016		—		—		312,684
Total product revenue	625,799		627,844		255,706		382,269		1,289		13		1,892,920
Royalties and advertising fees	380		22,452		—		1,602		9,840		21,268		55,542
Financing revenue	—		—		1,157		21,438		—		—		22,595
Interest income	—		161		42,717		354		—		—		43,232
Interest income from amortization of original purchase discount	—		—		14,269		—		—		—		14,269
Warranty and damage revenue	—		—		24,057		19,255		3,062		—		46,374
Other revenues	250		16,397		21,602		15,071		77		660		54,057
Total service revenue	630		39,010		103,802		57,720		12,979		21,928		236,069
Rental revenue, net	—		—		—		—		14,518		—		14,518
Total rental revenue	—		—		—		—		14,518		—		14,518
Total revenue	$	626,429	$	666,854	$	359,508	$	439,989	$	28,786	$	21,941	$	2,143,507

The following represents the disaggregated revenue by reportable segments for the three months ended June 25, 2022:

	Three Months Ended
	June 25, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy’s		Sylvan		Consolidated
Retail sales	$	306,183	$	151,421	$	161,195	$	194,789	$	661	$	13	$	814,262
Wholesale sales	314		134,196		—		3,237		—		—		137,747
Total product revenue	306,497		285,617		161,195		198,026		661		13		952,009
Royalties and advertising fees	207		9,395		—		516		4,603		10,668		25,389
Financing revenue	—		—		—		10,860		—		—		10,860
Interest income	—		67		24,216		191		—		—		24,474
Interest income from amortization of original purchase discount	—		—		24,671		—		—		—		24,671
Warranty and damage revenue	—		—		13,046		10,677		1,480		—		25,203
Other revenues	193		7,654		10,171		6,158		44		831		25,051
Total service revenue	400		17,116		72,104		28,402		6,127		11,499		135,648
Rental revenue, net	—		—		—		—		7,341		—		7,341
Total rental revenue	—		—		—		—		7,341		—		7,341
Total revenue	$	306,897	$	302,733	$	233,299	$	226,428	$	14,129	$	11,512	$	1,094,998

13

The following represents the disaggregated revenue by reportable segments for the six months ended June 25, 2022:

	Six Months Ended
	June 25, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	616,614	$	313,970	$	327,837	$	406,301	$	1,731	$	24	$	1,666,477
Wholesale sales	488		257,428		—		6,780		—				264,696
Total product revenue	617,102		571,398		327,837		413,081		1,731		24		1,931,173
Royalties and other franchise based fees	341		18,457		—		1,064		9,427		20,177		49,466
Financing revenue	—		—		—		19,034		—		—		19,034
Interest income	—		139		51,879		387		—		—		52,405
Interest income from amortization of original purchase discount	—		—		62,277		—		—		—		62,277
Warranty and damage revenue	—		—		26,591		22,156		3,084		—		51,831
Other revenues	408		13,952		20,974		12,121		106		1,355		48,916
Total service revenue	749		32,548		161,721		54,762		12,617		21,532		283,929
Rental revenue, net	—		—		—		—		15,365		—		15,365
Total rental revenue	—		—		—		—		15,365		—		15,365
Total revenue	$	617,851	$	603,946	$	489,558	$	467,843	$	29,713	$	21,556	$	2,230,467

Contract Balances

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of July 1, 2023 and December 31, 2022:

(In thousands)	July 1, 2023		December 31, 2022
Accounts receivable	$	213,897	$	143,582
Notes receivable	13,739		14,988
Customer deposits	$	16,394	$	20,816
Gift cards and loyalty programs	9,393		9,565
Deferred franchise fee revenue	24,010		22,175
Other deferred revenue	10,279		10,688
Total deferred revenue	$	60,076	$	63,244

Deferred revenue consists of (1) amounts received for merchandise of which customers have not yet taken possession, (2) gift card or store credits outstanding, and (3) loyalty reward program credits which are primarily recognized within one year following the revenue deferral. Deferred franchise fee revenue is recognized over the term of the agreement, which is between five and twenty years. The amount of revenue recognized in the period that was included in the contract liability balance at the beginning of the period is immaterial to the condensed consolidated financial statements.

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(7) Long-Term Obligations

For details regarding the Company’s long-term debt obligations, refer to “Note 10 – Long-Term Obligations” in the Form 10-K.

Long-term obligations at July 1, 2023 and December 31, 2022 were as follows:

(In thousands)	July 1, 2023		December 31, 2022
Term loans, net of debt issuance costs
First lien term loan, due March 10, 2026	$	1,066,349	$	779,777
Second lien term loan, due September 10, 2026	290,566		289,435
Total term loans, net of debt issuance costs	1,356,915		1,069,212
ABL Revolver	146,500		295,000
Other long-term obligations	4,007		6,147
Finance lease liabilities	32,375		11,055
Total long-term obligations	1,539,797		1,381,414
Less current installments	13,192		6,935
Total long-term obligations, net	$	1,526,605	$	1,374,479

First Lien Credit Agreement

On February 2, 2023, the Company entered into the Third Amendment to the First Lien Credit Agreement, which amends the First Lien Credit Agreement dated as of March 10, 2021 to provide for an incremental term loan facility in the principal amount of $300.0 million and change the reference rate under the First Lien Credit Agreement from LIBOR to SOFR. The net proceeds were used to repay certain amounts outstanding under the Company’s ABL Credit Agreement.

Compliance with Debt Covenants

The Company’s revolving credit and long-term debt agreements impose restrictive covenants on it, including requirements to meet certain ratios. As of July 1, 2023, the Company was in compliance with all covenants under these agreements and, based on a continuation of current operating results, the Company expects to be in compliance for the next twelve months.

(8) Income Taxes

Overview

For the three months ended July 1, 2023 and June 25, 2022, the Company had an effective tax rate of 21.4% and 24.9%, respectively. For the six months ended July 1, 2023 and June 25, 2022, the Company had an effective tax rate of 11.7% and 24.5%, respectively. The changes in the effective tax rate compared to the prior year are due to a current year projected pre-tax loss compared to prior year pre-tax income and a current year non-cash goodwill impairment charge that is nondeductible for tax purposes.

Tax Receivable Agreement

On July 10, 2019, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with the then-existing non-controlling interest holders (the “Buddy’s Members”) that provides for the payment by the Company to the Buddy’s Members of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of Franchise Group New Holdco, LLC (“New Holdco”) resulting from future redemptions or exchanges of New Holdco units.

Payments will be made when such Tax Receivable Agreement related deductions actually reduce the Company’s income tax liability. No payments were made to the Buddy’s Members pursuant to the Tax Receivable Agreement during the six months ended July 1, 2023. Total amounts due under the Tax Receivable Agreement to the Buddy’s Members as of July 1, 2023 were $15.4 million, with $1.0 million in “Other current liabilities” and the remaining amount recorded in “Other non-current liabilities” in the accompanying Condensed Consolidated Balance Sheets. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code, the Company has obtained an increase in its share of the tax basis in the net assets of

15

New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. This increase in tax basis will reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

(9) Net Income (Loss) Per Share

Diluted net income (loss) per share is computed using the weighted-average number of common stock and, if dilutive, the potential common stock outstanding during the period. Potential common stock consists of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the calculations of basic and diluted net income (loss) per share:

	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income (loss) attributable to Franchise Group	$	(50,796)	$	40,983	$	(159,113)	$	53,301
Less: Preferred dividend declared	(2,129)		(2,129)		(4,257)		(4,257)
Adjusted net income (loss) available to Common Stockholders	$	(52,925)	$	38,854	$	(163,370)	$	49,044
Weighted-average common stock outstanding	35,177,146		40,356,299		35,089,660		40,331,855
Net dilutive effect of stock options and restricted stock	—		770,306		—		816,813
Weighted-average diluted shares outstanding	35,177,146		41,126,605		35,089,660		41,148,668
Net income (loss) per share:
Basic net income per share	$	(1.50)	$	0.96	$	(4.66)	$	1.22
Diluted net income per share	(1.50)		0.94		(4.66)		1.19

(10) Equity & Stock Compensation Plans

For a discussion of our stock-based compensation plans, refer to “Note 12 – Stock Compensation Plans” in the Form 10-K.

Restricted Stock Units

The Company has awarded service-based restricted stock units (the “RSUs”) to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs granted over the vesting period on a straight-line basis. The fair value of RSUs is determined using the Company’s closing stock price on the date of the grant. At July 1, 2023, unrecognized compensation costs related to the RSUs were $6.8 million. These costs are expected to be recognized through fiscal year 2026.

The following table summarizes the status of the RSUs as of and changes during the six months ended July 1, 2023:

	Number of RSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	273,302	$	36.39
Granted	284,818	27.89
Vested	(55,751)	29.18
Canceled	(130,919)	30.59
Balance as of July 1, 2023	371,450	$	33.00

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Performance Restricted Stock Units

The Company has awarded performance restricted stock units (the “PRSUs”) to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the PRSUs granted over the vesting period on a straight-line basis. The fair value of PRSUs is determined using the Company’s closing stock price on the date of the grant. At July 1, 2023, unrecognized compensation costs related to the PRSUs were $0.1 million. These costs are expected to be recognized through fiscal year 2025.

The following table summarizes the status of the PRSUs as of and changes during the six months ended July 1, 2023:

	Number of PRSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	364,857	$	32.92
Granted	217,088	33.79
Adjusted for performance results achieved(1)	154,904	24.84
Vested	(282,256)	24.82
Canceled	(86,475)	46.50
Balance as of July 1, 2023	368,118	$	33.05

(1) Represents an adjustment for performance results achieved related to outstanding 2020 PRSU shares that reached 200% achievement in March 2023.

Market-Based Performance Restricted Stock Units

The Company has awarded market-based performance restricted stock units (the “MPRSUs”) to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the MPRSUs granted over the vesting period on a straight-line basis. The fair value of MPRSUs is determined using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period using the proportionate amount of the award’s fair value that has been earned through service to date. Under GAAP, compensation expense is not reversed if the award target is not achieved. At July 1, 2023, unrecognized compensation costs related to the MPRSUs were $5.3 million. These costs are expected to be recognized through fiscal year 2024.

The following table summarizes the status of the MPRSUs as of and changes during the six months ended July 1, 2023:

	Number of MPRSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	840,926	$	21.77
Granted	—	—
Vested	—	—
Canceled	(125,500)	30.96
Balance as of July 1, 2023	715,426	$	20.16

Stock Options

The Company has awarded stock options to its non-employee directors and officers. As of July 1, 2023, there were 206,376 stock options outstanding. During the six months ended July 1, 2023, there were no stock options granted, 48,188 stock options exercised, and no stock options forfeited. The weighted-average exercise price of stock options outstanding was $9.32 per share as of July 1, 2023. All outstanding stock options will expire in fiscal years 2023 and 2024.

At July 1, 2023, there were zero non-vested stock options outstanding and there was no remaining unrecognized compensation cost related to vested stock options.

17

The following table summarizes information about stock options outstanding and exercisable at July 1, 2023:

	Options Outstanding and Exercisable
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)
$0.00 - $10.39	175,000	$	8.85	0.5
$10.40 - $11.97	17,487	11.93		1.2
$11.98 - $12.01	13,889	12.01		0.5
	206,376	$	9.32

Stock Compensation Expense

The Company recorded $2.8 million and $10.9 million in stock-based compensation expense during the six months ended July 1, 2023 and June 25, 2022, respectively.

Long-Term Incentive Plans

The Company has long-term incentive plans at various operating companies which are recorded as liabilities. Upon vesting, the awards granted under these plans may be settled in cash or shares of the Company’s stock at the Company’s discretion. The total aggregate liability for these plans as of July 1, 2023 is $12.7 million, recorded in “Other non-current liabilities” on the Condensed Consolidated Balance Sheets. During the six months ended July 1, 2023, total expense recognized related to these plans was $4.4 million.

(11) Related Party Transactions

The Company considers any of its directors, executive officers or beneficial owners of more than 5% of its common stock, or any member of the immediate family of the foregoing persons, to be related parties.

Messrs. Kahn and Laurence

Brian Kahn and Vintage Capital Management, LLC and its affiliates (“Vintage”), in aggregate, held approximately 34.8% of the aggregate voting power of the Company through their ownership of common stock as of July 1, 2023. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company and served as a member of the Company’s Board of Directors until May 2021.

On May 10, 2023, the Company announced that it has entered into a definitive agreement and plan of merger with Freedom VCM, Inc., a Delaware corporation (“Parent”) and Freedom VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the “Merger Agreement”), pursuant to which members of the senior management team of the Company led by Brian Kahn, the Company’s Chief Executive Officer (collectively with affiliates and related parties of the senior management team, the “Management Group”), have agreed to acquire approximately 64% of the Company’s issued and outstanding common stock that the Management Group does not presently own or control (the “Proposed Merger”). For more detailed information regarding the Merger Agreement and Proposed Merger, refer to “Note 2 – Acquisitions and Business Combinations” in this Quarterly Report.

Buddy’s Franchises. Mr. Kahn’s brother-in-law owns eight Buddy’s franchises. All transactions between the Company’s Buddy’s segment and Mr. Kahn’s brother-in-law are conducted on a basis consistent with other franchisees.

Tax Receivable Agreement

Refer to “Note 8 – Income Taxes” for detail regarding the amounts due under the Tax Receivable Agreement to the Buddy’s Members.

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(12) Commitments and Contingencies

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s business, financial condition, cash flows, or results of operations.

The Company is party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

Refer to “Note 14 – Subsequent Events” for detail regarding litigation related to the Proposed Merger.

Guarantees

The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired Pet Supplies Plus or Vitamin Shoppe stores from the Company. In the event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and in aggregate are $34.4 million and $30.2 million as of July 1, 2023 and December 31, 2022, respectively. In certain cases, the Company could attempt to recover from the franchisees’ personal assets should the Company be required to pay remaining lease obligations.

If the Company is required to make payments under any of these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under any of these guarantees is remote as of July 1, 2023.

(13) Segments

The Company’s operations are conducted in six reportable business segments: Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy’s, and Sylvan. The Company defines its segments as those operations which results its chief operating decision maker regularly reviews to analyze performance and allocate resources.

The Vitamin Shoppe segment is an omnichannel specialty retailer and wellness lifestyle company with the mission of providing customers with the most trusted products, guidance, and services to help them become their best selves, however they define it. The Vitamin Shoppe segment offers one of the largest varieties of products among vitamin, mineral and supplement retailers. The broad product offering enables the company to provide customers with a depth of selection of products that may not be readily available at other specialty retailers or mass merchants, such as discount stores, supermarkets, drug stores and wholesale clubs. The Vitamin Shoppe continues to focus on improving the customer experience through the roll-out of initiatives including increasing customer engagement and personalization, redesigning the omnichannel experience (including in stores as well as through the internet and mobile devices), growing private brands and improving the effectiveness of pricing and promotions. Vitamin Shoppe is headquartered in Secaucus, New Jersey.

The Pet Supplies Plus segment is a leading omnichannel retail chain and franchisor of pet supplies and services. Pet Supplies Plus has a diversified revenue model comprised of Company-owned store revenue, franchise royalties and revenue generated by the wholesale distribution of products to its franchisees. Pet Supplies Plus offers a curated selection of premium brands, proprietary private labels and specialty products with retail price parity with online players. Additionally, Pet Supplies Plus offers grooming, pet wash and other services in most of its locations. The Pet Supplies Plus segment operates under the “Pet Supplies Plus” and "Wag N' Wash" brands and is headquartered in Livonia, Michigan.

The Badcock segment is a retailer of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Additionally, Badcock offers multiple and flexible payment solutions and credit options through its consumer and third-party financing services. The Badcock segment operates under the “Badcock Home Furniture & more” brand and is headquartered in Mulberry, Florida.

The American Freight segment is a retail chain offering in-store and online access to furniture, mattresses, new and out-of-box home appliances and home accessories at discount prices. American Freight buys direct from manufacturers and sells direct in warehouse-style stores. By cutting out the middleman and keeping its overhead costs low, American Freight can offer quality products at low prices. American Freight provides customers with multiple payment options providing access to high-quality products and brand name appliances that may otherwise remain aspirational to some of its customers.

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American Freight also serves as a liquidation channel for major appliance vendors. American Freight operates specialty distribution centers that test every out-of-box appliance before it is offered for sale to customers. Customers typically are covered by the original manufacturer’s warranty and are offered the opportunity to purchase a full suite of extended-service plans and services. The American Freight segment operates under the “American Freight” brand and is headquartered in Delaware, Ohio.

The Buddy’s segment is a specialty retailer of high quality, name brand consumer electronic, residential furniture, appliances and household accessories through rent-to-own agreements. The rental transaction allows customers the opportunity to benefit from the use of high-quality products under flexible rental purchase agreements without long-term obligations. The Buddy’s segment operates under the “Buddy’s” brand and is headquartered in Orlando, Florida.

The Sylvan segment is an established and growing franchisor of supplemental education for Pre-K-12 students and families. Sylvan addresses the full range of student needs with a broad variety of academic curriculums delivered in an omnichannel format. The Sylvan platform provides franchisees with the ability to provide a range of services, including on premises, virtually, at a satellite location, and in the home. Sylvan is headquartered in Hunt Valley, Maryland.

Refer to “Note 6 – Revenue” for total revenues by segment. Operating income (loss) by segment were as follows:

	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Income (loss) from operations:
Vitamin Shoppe	$	28,651	$	31,017	$	55,846	$	66,371
Pet Supplies Plus	17,589		18,654		36,955		35,675
Badcock	2,859		30,903		17,602		101,134
American Freight	(21,890)		5,029		(108,519)		16,242
Buddy’s	2,894		3,561		6,633		7,626
Sylvan	1,823		1,633		2,974		2,581
Total Segments	31,926		90,797		11,491		229,629
Corporate	(9,426)		(13,691)		(15,520)		(22,157)
Consolidated income (loss) from operations	$	22,500	$	77,106	$	(4,029)	$	207,472

Total assets by segment were as follows:

(In thousands)	July 1, 2023		December 31, 2022
Total assets:
Vitamin Shoppe	$	620,559	$	625,543
Pet Supplies Plus	996,304		977,234
Badcock	730,969		789,727
American Freight	843,288		904,378
Buddy’s	133,091		135,192
Sylvan	87,282		90,361
Total Segments	3,411,493		3,522,435
Corporate	160,368		107,977
Consolidated total assets	$	3,571,861	$	3,630,412

(14) Subsequent Events

Redemption of Preferred Stock

On July 19, 2023, the Company issued a notice of redemption for all outstanding shares of its 7.50% Series A Cumulative Perpetual Preferred Stock (the “Preferred Stock”). The Company is redeeming the Preferred Stock in connection

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with the Proposed Merger and in accordance with the terms and conditions of the Merger Agreement. The Redemption is contingent upon the Company’s successful completion of the Proposed Merger and, in the event the Proposed Merger does not occur and the Merger Agreement is terminated in accordance with its terms, the notice of redemption will be deemed rescinded and the Redemption will not occur.

The Preferred Stock will be redeemed in cash at a redemption price equal to $25.00 per share plus any accrued and unpaid dividends from the last dividend payment date, if any, up to but not including the Redemption Date (the “Redemption Price”). The Redemption Price is expected to be paid on August 18, 2023 or such later date as the parties to the Merger Agreement may agree, but in no event later than one business day following the Effective Time of the Proposed Merger (the “Redemption Date”). From and after the Redemption Date, dividends will cease to accrue on the Preferred Stock and the Preferred Stock will no longer be deemed outstanding and all rights of the holders of the Preferred Stock, other than the right to receive the Redemption Price upon Redemption, will cease and terminate. Upon Redemption, the Preferred Stock will be delisted from trading on the Nasdaq Global Market.

Litigation Related to the Proposed Merger

As disclosed in the definitive proxy statement filed by the Company with the SEC on July 14, 2023 (the “Definitive Proxy Statement”), between June 14, 2023 and July 13, 2023, the Company received from purported stockholders of the Company (i) five demand letters relating to the Proposed Merger and (ii) five demands pursuant to Section 220 of the General Corporation Law of the State of Delaware seeking certain books and records of the Company related to the Proposed Merger and related matters.

Following the filing of the Definitive Proxy Statement, one lawsuit relating to the Proposed Merger was filed: John Pels v. Franchise Group, Inc., et al., Case 23 CVH 07 0508 (Ohio C.P., July 20, 2023), (the “Action”) and the Company received from purported Company stockholders (i) two additional Section 220 books and records demands (cumulatively with the Section 220 books and records demands disclosed in the Definitive Proxy Statement, the “220 Demands”) and (ii) nine additional demand letters relating to the Proposed Merger (cumulatively with the demand letters disclosed in the Definitive Proxy Statement, the “Demand Letters” and together with the 220 Demands and the Actions, the “Matters”). The Matters allege, among other things, that the defendants named therein violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder because the preliminary proxy statement filed with the SEC in connection with the Proposed Merger or Definitive Proxy Statement allegedly omit or misstate certain material information, and/or were allegedly in breach of their obligations under state law and/or common law. The Action seeks, among other things, injunctive relief preventing the consummation of the Proposed Merger, rescission of the Proposed Merger if it is consummated, damages and attorneys’ fees.

The Company believes that the claims asserted in the Matters are without merit and that no supplemental disclosure is required under applicable law. However, in order to moot unmeritorious disclosure claims, to avoid the risk of the Matters delaying or adversely affecting the Proposed Merger and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, the Company determined to voluntarily supplement the Definitive Proxy Statement as described in the supplement to the Definitive Proxy Statement filed on August 8, 2023.

This Action is not expected to affect the timing of the Company’s special meeting of stockholders to be held for the purpose of voting upon, among other things, the Proposed Merger, which is scheduled to be held on August 17, 2023, or the amount of the consideration to be paid to the Company’s stockholders in connection with the Proposed Merger.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements concerning our business, operations, and financial performance and condition as well as our plans, objectives, and expectations for our business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. They are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Additionally, other factors may cause actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks described under “Item 1A-Risk Factors,” including:

•the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

•the inability to complete the Proposed Merger due to the failure to obtain stockholder approval for the Proposed Merger or the failure to satisfy other conditions to completion of the Proposed Merger;

•risks related to disruption of management’s attention from our ongoing business operations due to the Proposed Merger;

•unexpected costs, charges or expenses resulted from the Proposed Merger;

•our ability to retain and hire key personnel in light of the Proposed Merger;

•certain restrictions during the pendency of the Proposed Merger that may impact our ability to pursue certain business opportunities or strategic transactions;

•litigation relating to the Proposed Merger has and could be instituted against the parties to the Merger Agreement or their respective directors, managers or officers, including the effects of any outcomes related thereto;

•the effect of the announcement of the Proposed Merger on our relationships with our franchisees, dealers and customers, operating results and business generally;

•the risk that the Proposed Merger will not be consummated in a timely manner, if at all;

•the market's perception of our prospects could be adversely affected if the Proposed Merger were delayed or were not consummated;

•the risk that natural disasters, public health crises, political uprisings, uncertainty or unrest, or other catastrophic events could adversely affect our operations and financial results, including the impact of the COVID-19 pandemic on manufacturing operations and our supply chain, customer traffic and our operations in general;

•the possibility that any of the anticipated benefits of our acquisitions or dispositions will not be realized or will not be realized within the expected time period, our businesses and our acquisitions may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, or revenues following our acquisitions may be lower than expected or we are unable to sell non-core assets;

•our ability to identify and consummate attractive acquisitions on favorable terms;

•additional leverage incurred in connection with acquisitions or other capital expenditure initiatives;

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•our inability to grow on a sustainable basis;

•changes in operating costs, including employee compensation and benefits and increased transportation costs and delays attributed to global supply chain challenges;

•higher inflation rates, which may result in reduced customer traffic or impact discretionary consumer spending;

•the seasonality of the products and services we provide in certain of our business segments;

•departures of key executives, senior management members or directors;

•our ability to attract additional talent to our teams;

•our ability to maintain an active trading market for our common stock on The Nasdaq Global Market (“Nasdaq”);

•the effect of regulation of the products and services that we offer, including changes in laws and regulations and the costs and administrative burdens associated with complying with such laws and regulations;

•our ability to develop and maintain relationships with our third-party product and service providers;

•our ability to offer merchandise and services that our customers demand;

•our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities;

•competitive conditions in the retail industry and consumer services markets;

•the performance of our products within the prevailing industry;

•worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, higher debt capital costs, change in consumer confidence, tastes, preferences and spending, and changes in vendor relationships;

•the uncertainty of public health measures on our business and results of operations;

•disruption of manufacturing, warehouse or distribution facilities or information systems;

•the continued reduction of our competitors promotional pricing on new-in-box appliances, potentially adversely impacting our sales of out-of-box appliances and associated margin;

•any potential non-compliance, fraud or other misconduct by our franchisees, dealers, or employees;

•our ability and the ability of our franchisees and dealers to comply with legal and regulatory requirements;

•failures by our franchisees, the franchisees’ employees, and our dealers to comply with their contractual obligations to us and with laws and regulations, to the extent these failures affect our reputation or subject us to legal risk;

•our ability to attract and retain new franchisees and dealers and the ability of our franchisees and dealers to open new stores and territories and operate them successfully;

•the availability of suitable store locations at appropriate lease terms;

•the ability of our franchisees and dealers to generate sufficient revenue to pay us royalties and fees;

•our ability to manage Company-owned stores;

•our exposure to litigation and any governmental investigations;

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•our ability and our franchisees’ and dealers’ ability to protect customers’ personal information, including from a cyber-security incident;

•the impact of identity-theft concerns on customer attitudes toward our services;

•our ability to access the credit markets and satisfy our covenants to lenders;

•our operating subsidiary’s potential repurchase of certain finance receivables if certain representations and warranties about the quality and nature of such receivables are breached, which may negatively impact our results of operations, financial condition, and liquidity;

•a decline in the credit quality of our customers, a decrease in our credit sales, or other factors outside of our control, which could lead to a decrease in our product sales and profitability;

•our reliance on technology systems and electronic communications; and

•other factors, including the risk factors discussed in this Quarterly Report.

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. These forward-looking statements speak only as of the date of this quarterly report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. A potential investor or other vendor should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission (“SEC”) after the date of this Quarterly Report.

Overview

We are an owner and operator of franchised and franchisable businesses that continually looks to grow our portfolio of brands while utilizing our operating and capital allocation philosophies to generate strong cash flows. We have a diversified and growing portfolio of highly recognized brands. Our asset-light business model is designed to generate consistent, recurring revenue and strong operating margins and requires limited maintenance capital expenditures. As a multi-brand operator, we continually look to diversify and grow our portfolio of brands either through acquisition or organic brand development. Our acquisition strategy typically targets businesses that are highly cash flow generative with compelling unit economics that can be scaled by adding franchise and company owned units, or that can be restructured to enhance performance and value to Franchise Group. We strive to create value for our stockholders by generating free cash flow and capital-efficient growth across economic cycles.

Our business lines include The Vitamin Shoppe (“Vitamin Shoppe”), Pet Supplies Plus, Badcock Home Furniture & more (“Badcock”), American Freight, Buddy’s Home Furnishings (“Buddy’s”), and Sylvan Learning (“Sylvan”). Refer to “Note 13 – Segments” in this Quarterly Report for additional information.

Our revenue is primarily derived from merchandise sales, rental revenue, and service revenues comprised of royalties and other required fees from our franchisees, dealers and financing programs.

In evaluating our performance, management focuses on Adjusted EBITDA as a measure of the cash flow from recurring operations from the businesses. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items.

Proposed Merger

On May 10, 2023, we announced that we had entered into a definitive agreement and plan of merger with Freedom VCM, Inc., a Delaware corporation (“Parent”) and Freedom VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the “Merger Agreement”), pursuant to which members of our senior management team led by Brian Kahn, our Chief Executive Officer (collectively with affiliates and related parties of our senior management team, the “Management Group”), have agreed to acquire approximately 64% of our issued and outstanding common stock that the Management Group does not presently own or control(the “Proposed Merger”). Under the terms of the Proposed Merger, our common stockholders, other than the Management Group, are entitled to receive $30.00 in cash for each share of our common stock they hold.

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The Proposed Merger is anticipated to close in the second half of 2023, subject to satisfaction or waiver of the closing conditions, including approval by regulatory authorities and our stockholders, including approval by a majority of the shares of our common stock not owned or controlled by the Management Group. Upon completion of the Proposed Merger, we will become a private company and will no longer be publicly listed or traded on Nasdaq.

Additional information about the Merger Agreement and the Proposed Merger is set forth in our Definitive Proxy Statement on Schedule 14A filed with the SEC on July 14, 2023.

Impact of COVID-19

As of the date of this Quarterly Report, we have experienced some supply chain delays and disruptions, including adverse consequences to our supply chain function from decreased procurement volumes in connection with the COVID-19 pandemic. We believe that the lingering effects of the COVID-19 pandemic could negatively impact our business and financial results by weakening demand for our products and services, further disrupting our supply chain or affecting our ability to raise capital from financial institutions. As events continue to change, we are unable to accurately predict the impact that the COVID-19 pandemic will have on our results of operations due to uncertainties including, but not limited to, the impact of new subvariants and the public's or governments' response to the outbreak; however, we are actively managing our business to respond to the impact.

Results of Operations

The table below shows results of operations for the three and six months ended July 1, 2023 and June 25, 2022.

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	1,038,686	$	1,094,998	$	(56,312)	(5.1)	%	$	2,143,507	$	2,230,467	$	(86,960)	(3.9)	%
Income from operations	22,500		77,106		(54,606)		(70.8)	%	(4,029)		207,472		(211,501)		(101.9)	%
Net income	$	(50,796)	$	40,983	$	(91,779)	(223.9)	%	$	(159,113)	$	53,301	$	(212,414)	(398.5)	%

Revenues. The table below sets forth the components and changes in our revenues for the three and six months ended July 1, 2023 and June 25, 2022.

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Product	$	916,112	$	952,009	$	(35,897)	(3.8)	%	$	1,892,920	$	1,931,173	$	(38,253)	(2.0)	%
Service and other	115,501		135,648		(20,147)		(14.9)	%	236,069		283,929		(47,860)		(16.9)	%
Rental	7,073		7,341		(268)		(3.7)	%	14,518		15,365		(847)		(5.5)	%
Total revenue	$	1,038,686	$	1,094,998	$	(56,312)	(5.1)	%	$	2,143,507	$	2,230,467	$	(86,960)	(3.9)	%

For the three months ended July 1, 2023, total revenues decreased $56.3 million, or (5.1)%, to $1,038.7 million compared to $1,095.0 million in the same period last year. This decrease was primarily due to a $61.1 million decrease in revenue at our Badcock segment and a $23.0 million decrease in revenue at our American Freight segment. These decreases were partially offset by a $30.1 million increase in revenue at our Pet Supplies Plus segment.

For the six months ended July 1, 2023, total revenues decreased $87.0 million, or (3.9)%, to $2,143.5 million compared to $2,230.5 million in the same period last year. The decrease was primarily due to a $130.1 million decrease in revenue at our Badcock segment and a $27.9 million decrease in revenue at our American Freight segment. These decreases were partially offset by a $62.9 million increase in revenue at our Pet Supplies Plus segment.

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Operating expenses.    The following table details the amounts and changes in our operating expenses for the three and six months ended July 1, 2023 and June 25, 2022.

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Cost of revenue:
Product	$	621,482	$	600,780	$	20,702	3.4	%	$	1,278,386	$	1,217,364	$	61,022	5.0	%
Service and other	8,634		8,732		(98)		(1.1)	%	18,213		17,395		818		4.7	%
Rental	2,507		2,741		(234)		(8.5)	%	5,133		5,603		(470)		(8.4)	%
Total cost of revenue	632,623		612,253		20,370		3.3	%	1,301,732		1,240,362		61,370		4.9	%
Selling, general, and administrative expenses	383,563		405,639		(22,076)		(5.4)	%	770,804		782,633		(11,829)		(1.5)	%
Goodwill impairment expense	—		—		—		100.0	%	75,000		—		75,000		—	%
Total operating expenses	$	1,016,186	$	1,017,892	$	(1,706)	(0.2)	%	$	2,147,536	$	2,022,995	$	124,541	6.2	%

For the three months ended July 1, 2023, total operating expenses were $1,016.2 million compared to $1,017.9 million in the same period last year, representing a decrease of $1.7 million, or (0.2)%. This decrease was primarily due to a $33.0 million decrease in operating expenses at our Badcock segment, partially offset by a $31.1 million increase in operating expenses at our Pet Supplies Plus segment.

For the six months ended July 1, 2023, total operating expenses were $2,147.5 million compared to $2,023.0 million in the same period last year, representing an increase of $124.5 million, or 6.2%. This increase was primarily due to a $96.9 million increase in operating expenses at our American Freight segment, $75.0 million of which was due to a non-cash goodwill impairment charge, as further discussed in “Note 5 - Goodwill and Intangible Assets” in the Notes to the Consolidated Financial Statements in this Quarterly Report. The remaining increase was due to a $61.6 million increase in operating expenses at our Pet Supplies Plus segment and a $19.1 million increase in operating expenses at our Vitamin Shoppe segment, partially offset by a $46.5 million decrease in operating expenses at our Badcock segment.

Non-operating income (expense) decreased $64.6 million and $39.2 million for the three and six months ended July 1, 2023, respectively, due to the following:

Gain on sale-leaseback transactions. Gain on sale-leaseback transactions decreased $49.9 million for the three and six months ended July 1, 2023 compared to the prior year due to sale-leaseback transactions in the three months ended June 25, 2022.

Other. Other expense increased $16.6 million for the three months ended July 1, 2023 compared to the prior year due to a $16.6 million increase in the loss related to our investment in NextPoint Acquisition Corp. compared to the prior period. For the six months ended July 1, 2023, other expense decreased $5.2 million due to a decrease in the loss related to our investment in NextPoint Acquisition Corp. compared to the prior period.

Interest expense, net. Interest expense, net decreased $5.5 million and $10.7 million for the three and six months ended July 1, 2023, respectively. These decreases were due primarily to decreases of $22.9 million and $40.1 million of interest expense related to the Badcock securitized receivables portfolio for the three and six months ended July 1, 2023, respectively, partially offset by $14.9 million and $26.5 million in additional interest expense for the three and six months ended July 1, 2023, respectively, related to the First and Second Lien Term Loans and revolving credit facility (the “ABL Revolver”).

Income tax benefit. Our effective tax rate, including discrete income tax items, was 11.7% and 24.5% for the six months ended July 1, 2023 and June 25, 2022, respectively. The changes in the effective tax rate for the six months ended July 1, 2023 compared to the same period in the prior year are due to a current year projected pre-tax loss compared to prior year pre-tax income and a current year non-cash goodwill impairment charge that is nondeductible for tax purposes.

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Segment Information

We, through our franchisees and Company-owned stores, operate a system of point of sale retail and rent-to-own locations. Our operations are conducted in six reporting business segments: Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy’s, and Sylvan. Refer to “Note 13 – Segments” in this Quarterly Report for additional information.

Vitamin Shoppe

The following table summarizes the operating results of our Vitamin Shoppe segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	304,727	$	306,897	$	(2,170)	(0.7)	%	$	626,429	$	617,851	$	8,578	1.4	%
Operating expenses	276,076		275,880		196		0.1	%	570,583		551,480		19,103		3.5	%
Segment income	$	28,651	$	31,017	$	(2,366)	(7.6)	%	$	55,846	$	66,371	$	(10,525)	(15.9)	%

Total revenue for the three months ended July 1, 2023 for our Vitamin Shoppe segment decreased $2.2 million, or 0.7%, compared to the same period in the prior year. The decrease was primarily due to lower store count. Total revenue for the six months ended July 1, 2023 increased $8.6 million, or 1.4%, compared to the same period in the prior year. The increase in revenue was driven primarily by higher average transaction values and increased store traffic compared to the prior year period.

Operating expenses for our Vitamin Shoppe segment remained relatively flat with an increase of $0.2 million, or 0.1%, for the three months ended July 1, 2023. For the six months ended July 1, 2023, operating expenses increased $19.1 million, or 3.5%, compared to the same period in the prior year primarily due to an increase in cost of goods sold of $14.1 million, which was primarily due to increased sales and merchandise mix.

Pet Supplies Plus

The following table summarizes the operating results of our Pet Supplies Plus segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	332,783	$	302,733	$	30,050	9.9	%	$	666,854	$	603,946	$	62,908	10.4	%
Operating expenses	315,194		284,079		31,115		11.0	%	629,899		568,271		61,628		10.8	%
Segment income	$	17,589	$	18,654	$	(1,065)	(5.7)	%	$	36,955	$	35,675	$	1,280	3.6	%

Total revenue for our Pet Supplies Plus segment increased $30.1 million, or 9.9%, for the three months ended July 1, 2023 as compared to the same period last year. Our Pet Supplies Plus segment opened 66 franchise stores and 9 corporate stores since the prior year period, resulting in a $16.1 million increase in wholesale revenue and a $13.3 million increase in retail sales.

Total revenue for our Pet Supplies Plus segment increased $62.9 million, or 10.4%, for the six months ended July 1, 2023 as compared to the same period last year. The increase was also due the opening of 66 franchise stores and 9 corporate stores since the prior year period, resulting in a $44.8 million increase in wholesale revenue and a $17.6 million increase in retail sales.

Operating expenses for our Pet Supplies Plus segment increased $31.1 million, or 11.0%, for the three months ended July 1, 2023 as compared to the same period last year as cost of revenue increased at a rate comparable to revenue and merchandise costs also increased.

Operating expenses for our Pet Supplies Plus segment increased $61.6 million, or 10.8%, for the six months ended July 1, 2023 as compared to the same period last year as cost of revenue increased at a rate comparable to revenue.

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Badcock

The following table summarizes the operating results of our Badcock segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	172,221	$	233,299	$	(61,078)	(26.2)	%	$	359,508	$	489,558	$	(130,050)	(26.6)	%
Operating expenses	169,362		202,396		(33,034)		(16.3)	%	341,906		388,424		(46,518)		(12.0)	%
Segment income	$	2,859	$	30,903	$	(28,044)	(90.7)	%	$	17,602	$	101,134	$	(83,532)	(82.6)	%

Total revenue for our Badcock segment decreased $61.1 million, or (26.2)%, for the three months ended July 1, 2023 as compared to the same period last year. The decrease was attributable to:

•A $37.7 million decrease in product revenue driven by the inflationary environment, which resulted in decreased customer traffic compared to the prior year period.

•A $23.3 million decrease in service revenue, as the amortization of the accounts receivable discount included in service revenue was less than the prior year period ($6.0 million in the three months ended July 1, 2023 compared to $24.7 million in the three months ended June 25, 2022). The remaining decrease was driven by lower interest income due to the declining customer financing receivable balance.

For the six months ended July 1, 2023, total revenue for our Badcock segment decreased $130.1 million, or (26.6)% as compared to the same period last year. The decrease was attributable to:

•A $72.1 million decrease in product revenue driven by the inflationary environment, which resulted in decreased customer traffic compared to the prior year period.

•A $57.9 million decrease in service revenue, as the amortization of the accounts receivable discount included in service revenue was less than the prior year period ($14.3 million in the six months ended July 1, 2023 compared to $62.3 million in the six months ended June 25, 2022). The remaining decrease was driven by lower interest income due to the declining customer financing receivable balance.

Operating expenses for our Badcock segment decreased $33.0 million, or (16.3)%, and $46.5 million, or (12.0)%, for the three and six months ended July 1, 2023, respectively, as compared to the same periods last year. These decreases were due to the decrease in revenue partially offset by higher merchandise costs.

American Freight

The following table summarizes the operating results of our American Freight segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	203,427	$	226,428	$	(23,001)	(10.2)	%	$	439,989	$	467,843	$	(27,854)	(6.0)	%
Operating expenses	225,317		221,399		3,918		1.8	%	548,508		451,601		96,907		21.5	%
Segment income	$	(21,890)	$	5,029	$	(26,919)	(535.3)	%	$	(108,519)	$	16,242	$	(124,761)	(768.1)	%

Total revenue for our American Freight segment decreased $23.0 million, or 10.2%, and $27.9 million, or (6.0)%, for the three and six months ended July 1, 2023, respectively, as compared to the same period last year. The decreases were attributable to lower demand for furniture, mattresses, and appliances driven by the inflationary environment which resulted in reduced customer traffic.

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Operating expenses for our American Freight segment increased $3.9 million, or 1.8%, and $96.9 million, or 21.5%, for the three and six months ended July 1, 2023, respectively, as compared to the same period in the prior year. The increase in operating expense for the six months ended July 1, 2023 was primarily due to a $75.0 million non-cash goodwill impairment charge, as further discussed in “Note 5 – Goodwill and Intangible Assets” in the Notes to the Consolidated Financial Statements in this Quarterly Report. The increase was also due to higher merchandise costs from orders placed in the prior year, which includes higher inbound freight costs.

Buddy’s

The following table summarizes the operating results of our Buddy’s segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	13,819	$	14,129	$	(310)	(2.2)	%	$	28,786	$	29,713	$	(927)	(3.1)	%
Operating expenses	10,925		10,568		357		3.4	%	22,153		22,087		66		0.3	%
Segment income	$	2,894	$	3,561	$	(667)	(18.7)	%	$	6,633	$	7,626	$	(993)	(13.0)	%

Total revenue for our Buddy’s segment decreased $0.3 million, or (2.2)%, and $0.9 million, or (3.1)%, for the three and six months ended July 1, 2023, respectively, as compared to the same periods last year. The decreases in revenue were primarily attributable to the inflationary environment which resulted in reduced customer traffic.

Operating expenses for our Buddy’s segment increased $0.4 million, or 3.4%, and $0.1 million, or 0.3%, for the three and six months ended July 1, 2023, respectively, due to an increase in selling, general, and administrative expense in the current year period.

Sylvan

The following table summarizes the operating results of our Sylvan segment:

	Three Months Ended								Six Months Ended
					Change								Change
(In thousands)	July 1, 2023		June 25, 2022		$		%		July 1, 2023		June 25, 2022		$		%
Total revenues	$	11,709	$	11,512	$	197	1.7	%	$	21,941	$	21,556	$	385	1.8	%
Operating expenses	9,886		9,879		7		0.1	%	18,967		18,975		(8)		—	%
Segment income	$	1,823	$	1,633	$	190	11.6	%	$	2,974	$	2,581	$	393	15.2	%

Total revenue for our Sylvan segment increased $0.2 million, or 1.7%, and $0.4 million, or 1.8%, for the three and six months ended July 1, 2023, respectively as compared to the same periods last year. The increases were attributable to an increase in franchise revenue.

Adjusted EBITDA

To provide additional information regarding our financial results, we have disclosed Adjusted EBITDA in the table below and within this Quarterly Report. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items specified below. Additionally, acquisition costs include adjusting for costs of potential acquisitions and final costs of completed acquisitions. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this Quarterly Report because we believe the presentation of this measure is useful to investors as a supplemental measure in evaluating the aggregate performance of our operating businesses and in comparing our results from period to period because it excludes items that we do not believe are reflective of our core or ongoing operating results. In the Adjusted EBITDA table below, we have removed all revenues and expenses related to our Badcock segment’s in-house financing operations. This includes all amounts related to accounts receivables and securitized receivables. We believe this provides investors a more accurate representation of ongoing operations as we intend to cease in-house financing operations within a year. This measure is used by our management to evaluate performance and make resource

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allocation decisions each period. Adjusted EBITDA is also the primary operating metric used in the determination of executive management’s compensation. In addition, a measure similar to Adjusted EBITDA is used in our credit facilities. Adjusted EBITDA is not a recognized financial measure under GAAP and may not be comparable to similarly-titled measures used by other companies in our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income (loss), operating income (loss), or any other performance measures derived in accordance with GAAP.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods indicated.

	Reconciliation of Net Income to Adjusted EBITDA
	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income (loss)	$	(50,796)	$	40,983	$	(159,113)	$	53,301
Add back:
Interest expense	83,364		88,839		170,493		181,167
Income tax expense (benefit)	(13,845)		13,572		(21,020)		17,250
Depreciation and amortization charges	21,265		19,554		42,889		41,588
Total Adjustments	90,784		121,965		192,362		240,005
EBITDA	39,988		162,948		33,249		293,306
Adjustments to EBITDA
Executive severance and related costs	24		161		1,593		256
Stock-based and long term executive compensation	2,771		8,041		7,221		14,667
Litigation costs and settlements	1,214		(269)		1,308		(39)
Corporate compliance costs	—		—		(4)		51
Store closures	99		153		117		1,086
Securitized accounts receivable interest income	(26,286)		(48,657)		(56,871)		(113,683)
Securitized accounts receivable allowance for credit losses	26,344		43,549		48,339		59,962
W.S. Badcock financing operations	(2,485)		(1,820)		(5,607)		(4,078)
Right-of-use and long-term asset impairment	274		273		819		648
Goodwill impairment	—		—		75,000		—
Integration costs	331		64		980		528
Gain on sale-leaseback and owned properties, net	—		(49,854)		—		(52,127)
Divestiture costs	—		493		198		2,429
Acquisition costs	7,860		4,776		7,961		5,403
Loss (gain) on investment in equity securities	3,781		(12,859)		5,611		10,864
Acquisition bargain purchase gain	—		(3,581)		—		(3,514)
Total Adjustments to EBITDA	13,927		(59,530)		86,665		(77,547)
Adjusted EBITDA	$	53,915	$	103,418	$	119,914	$	215,759

Liquidity and Capital Resources

We believe that we have sufficient liquidity to support our ongoing operations and maintain a sufficient liquidity position to meet our obligations and commitments for the next twelve months. Our liquidity plans are established as part of our financial and strategic planning processes and consider the liquidity necessary to fund our operating, capital expenditure and debt service needs.

We primarily fund our operations through operating cash flows and, as needed, a combination of borrowings under various credit agreements, availability under our revolving credit facilities and the issuance of equity securities. Cash generation can be subject to variability based on many factors, including seasonality and the effects of changes in end markets.

As of July 1, 2023, we have current installments of long-term obligations of $13.2 million, of which $6.9 million is finance leases and $6.3 million is the current portion of our senior secured revolving loan facility. We expect these obligations can be serviced from our cash and cash equivalents, which were $106.3 million as of July 1, 2023.

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During the six months ended July 1, 2023, we executed the following substantial transaction that will affect our liquidity and capital resources in future periods:

•On February 2, 2023, we entered into the Third Amendment to the First Lien Credit Agreement to provide for an incremental term loan facility in the principal amount of $300.0 million. The net proceeds of $281.5 million were used to make repayments on our senior secured revolving loan facility.

Sources and uses of cash

Operating activities. In the six months ended July 1, 2023, net cash provided by operating activities increased $89.3 million compared to the same period in the prior year primarily due to a $142.7 million decrease in cash used for inventory compared to the prior year period, a $31.8 million decrease in accounts receivable and a $29.9 million increase in accounts payable. These were primarily offset by a $118.7 million decrease in cash income from operations. Cash net income represents net income adjusted for non-cash or non-operating activities such as goodwill impairment, gains on the sale of Company assets, depreciation and amortization, deferred financing cost amortization and the change in fair value of investment.

Investing activities. In the six months ended July 1, 2023, cash provided by investing activities decreased $245.1 million compared to the same period in the prior year. This decrease was primarily due to a $237.2 million decrease in cash proceeds from the sale of property, plant and equipment compared to the prior year period.

Financing activities. In the six months ended July 1, 2023, cash provided by financing activities was $16.4 million, compared to cash used by financing activities of $362.4 million in the six months ended June 25, 2022. The increase in cash provided by financing activities was primarily due to proceeds received from the issuance of long-term debt, which increased $449.5 million in the current year period. Additionally, repayment of long-term debt increased $31.2 million in the current year period. These sources of cash were offset by a decrease of net cash from secured debt obligations of $22.5 million and a $17.0 million increase in payments for debt issuance costs.

Long-term debt borrowings

For a description of our long-term debt borrowing refer to “Note 7 – Long-Term Obligations” in this Quarterly Report.

Other factors affecting our liquidity

Tax Receivable Agreement. We may be required to make payments under the Tax Receivable Agreement (“TRA Payments”) to the former equity holders of Buddy’s (the “Buddy’s Members”). Under the terms of the Tax Receivable Agreement, we agreed to pay the Buddy’s Members 40% of the cash savings, if any, in federal, state and local taxes that we realize or are deemed to realize as a result of any increases in tax basis of the assets of New Holdco resulting from future redemptions or exchanges of New Holdco units held by the Buddy’s Members. Any future obligations and the timing of such payments under the Tax Receivable Agreement, however, are subject to several factors, including (i) the timing of subsequent exchanges of New Holdco units by the Buddy’s Members, (ii) the price of our common stock at the time of exchange, (iii) the extent to which such exchanges are taxable, (iv) the ability to generate sufficient future taxable income over the term of the Tax Receivable Agreement to realize the tax benefits and (v) any future changes in tax laws. If we do not generate sufficient taxable income in the aggregate over the term of the Tax Receivable Agreement to utilize the tax benefits, then we would not be required to make the related TRA Payments. Although the amount of the TRA Payments would reduce the total cash flow to us and New Holdco, we expect the cash tax savings we will realize from the utilization of the related tax benefits would be sufficient to fund the required payments. As of July 1, 2023, we have TRA Payments due to the Buddy's Members of $15.4 million.

Dividends. On May 9, 2023, the Board declared quarterly dividends of $0.46875 per share of Series A Preferred Stock. The dividends were paid in cash on July 17, 2023 to holders of record of the Company's Series A Preferred Stock on the close of business on July 3, 2023. The payment of dividends is at the discretion of our Board of Directors and depends, among other things, on our earnings, capital requirements, and financial condition. Our ability to pay dividends is also subject to compliance with financial covenants that are contained in our credit facility and may be restricted by any future indebtedness that we incur or issuances of our preferred stock. In addition, applicable law requires our Board of Directors to determine that we have adequate surplus prior to the declaration of dividends. We cannot provide an assurance that we will pay dividends at any specific level or at all.

On July 19, 2023, we issued a notice of redemption (the “Redemption”) for all outstanding shares of the Series A Preferred Stock. We are redeeming the Series A Preferred Stock in connection with the Proposed Merger and in accordance

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with the terms and conditions of the Merger Agreement. The Redemption is contingent upon our successful completion the Proposed Merger and, in the event the Proposed Merger does not occur and the Merger Agreement is terminated in accordance with its terms, the notice of redemption will be deemed rescinded and the Redemption will not occur.

The Preferred Stock will be redeemed in cash at a redemption price equal to $25.00 per share plus any accrued and unpaid dividends from the last dividend payment date, if any, up to but not including the Redemption Date (the “Redemption Price”). The Redemption Price is expected to be paid on August 18, 2023 or such later date as the parties to the Merger Agreement may agree but in no event later than one business day following the Effective Time (the “Redemption Date”). From and after the Redemption Date, dividends will cease to accrue on the Preferred Stock and the Preferred Stock will no longer be deemed outstanding and all rights of the holders of the Preferred Stock, other than the right to receive the Redemption Price upon Redemption, will cease and terminate. Upon Redemption, the Preferred Stock will be delisted from trading on the Nasdaq Global Market.

Future cash needs and capital requirements

Operating and financing cash flow needs. Our primary cash needs are expected to include the payment of scheduled debt and interest payments, capital expenditures and normal operating activities. We believe that the revolving credit facilities along with cash from operating activities, will be sufficient to support our cash flow needs for at least the next twelve months.

Several factors could affect our cash flow in future periods, including the following:

•The extent to which we extend additional operating financing to our franchisees beyond the levels of prior periods;

•The extent and timing of capital expenditures;

•The extent and timing of future acquisitions;

•Our ability to integrate our acquisitions and implement business and cost savings initiatives to improve profitability; and

•The extent, if any, to which our Board of Directors elects to continue to declare dividends on our common stock.

Compliance with debt covenants. Our revolving credit and long-term debt agreements impose restrictive covenants on us, including requirements to meet certain ratios. As of July 1, 2023, we were in compliance with all covenants under these agreements and, based on a continuation of current operating results, we expect to be in compliance for the remainder of fiscal 2023.

Off Balance Sheet Arrangements

For off balance sheet arrangements and guarantees to which the Company remains secondarily liable, refer to “Note 12 – Commitments and Contingencies” in this Quarterly Report.

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various types of market risk in the normal course of our business, including the impact of interest rate changes. We may enter into interest rate swaps to manage exposure to interest rate changes. We do not enter into derivative instruments for any purpose other than cash flow hedging and we do not hold derivative instruments for trading purposes.

Our exposure to interest rate risk relates to our long-term debt obligations, as they bear interest at LIBOR and SOFR, reset periodically and have an interest rate margin. Assuming our revolving credit facility was fully drawn, a ten basis point change in the interest rates would change our annual interest expense by $1.9 million.

ITEM 4

CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15I and 15d-15(e) under the Exchange Act) as of July 1, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of July 1, 2023 because of the material weakness in our internal control over financial reporting described below.

During the fiscal quarter ended September 24, 2022, the Company identified a material weakness in its controls over financial reporting involving the preparation of its Statement of Cash Flows. As a result of this deficiency, there was a misclassification of cash flows associated with interest payments on the Company’s secured borrowing resulting in an overstatement of cash flows provided by operating activities of $100.9 million and an overstatement of cash flows used in financing activities of $100.9 million in the Company’s 10-Q for the period ended June 25, 2022 and an overstatement of cash flows provided by operating activities of $53.0 million and an overstatement of cash used in financing activities of $53.0 million for the period ended March 26, 2022.

Management, with oversight from the Audit Committee, initiated several steps to design and implement new controls to remediate this material weakness. These steps included (i) implementing changes to the cash flow statement to segregate material non-recurring transactions, such as securitizations, to allow for better visibility of the presentation of the transactions, and (ii) enhancements to processes to identify any new non-recurring transactions that occurred during the period. While management has designed and implemented new controls to remediate this material weakness, the controls have not been in operation for a sufficient period of time to demonstrate that the material weakness has been remediated. These actions and planned actions are subject to ongoing evaluation by management and will require testing and validation of design and operating effectiveness of internal controls over financial reporting over future periods. Management is committed to the continuous improvement of internal control over financial reporting.

Notwithstanding the identified material weakness, management believes that the Condensed Consolidated Financial Statements and related financial information included in this 10-Q fairly present, in all material respects, our balance sheets, statements of operations, comprehensive income and cash flows as of and for the periods presented.

Changes in Internal Control over Financial Reporting

Other than the ongoing remediation efforts of the material weakness disclosed above, there were no changes in our internal control over financial reporting during the three months ended July 1, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

For information regarding legal proceedings, refer to “Note 12 – Commitments and Contingencies” in the Notes to the Consolidated Financial Statements in this Quarterly Report, which information is incorporated herein by reference.

ITEM 1A

RISK FACTORS

The following additional risk factors should be considered in addition to the risk factors described in Part I, Item 1A, in the Form 10-K.

The consummation of the Proposed Merger is subject to a number of conditions, many of which are largely outside of the parties’ control, and, if these conditions are not satisfied or waived on a timely basis, the Merger Agreement may be terminated and the Proposed Merger may not be completed.

The Proposed Merger is subject to certain customary closing conditions, including, but not limited to: (i) the Requisite Company Vote (as defined in the Merger Agreement); (ii) the absence of an injunction or law restraining, enjoining, rendering illegal or otherwise prohibiting consummation of the Proposed Merger; (iii) subject to customary materiality qualifiers, the accuracy of the representations and warranties contained in the Merger Agreement, including the representation that the Company has not suffered a Material Adverse Effect (as defined in the Merger Agreement) since May 10, 2023; and (iv) material performance by the other parties of their covenants under the Merger Agreement. The failure to satisfy all of the required conditions could delay the completion of the Proposed Merger by a significant period of time or prevent it from occurring. Any delay in completing the Proposed Merger could cause the parties to not realize some or all of the benefits that are expected to be achieved if the Proposed Merger is successfully completed within the expected timeframe. There can be no assurance that the conditions to closing of the Proposed Merger will be satisfied or waived or that the Proposed Merger will be completed within the expected timeframe or at all.

Failure to complete the Proposed Merger could adversely affect the stock price and future business and financial results of the Company.

There can be no assurance that the conditions to the closing of the Proposed Merger will be satisfied or waived or that the Proposed Merger will be completed. If the Proposed Merger is not completed within the expected timeframe or at all, the ongoing business of the Company could be adversely affected and the Company will be subject to a variety of risks and possible consequences associated with the failure to complete the Proposed Merger, including the following: (i) upon termination of the Merger Agreement under specified circumstances, the Company is required to pay Parent a termination fee of $10,350,000; (ii) the Company will incur certain transaction costs, including legal, accounting, financial advisor, filing, printing and mailing fees, regardless of whether the Proposed Merger closes; (iii) under the Merger Agreement, the Company is subject to certain restrictions on the conduct of its business prior to the closing of the Proposed Merger, which may adversely affect its ability to execute certain of its business strategies; (iv) the Company may lose key employees during the period in which the Company and Freedom VCM, Inc., a Delaware corporation (“Parent”) are pursuing the Proposed Merger, which may adversely affect the Company in the future if it is not able to hire and retain qualified personnel to replace departing employees; and (v) the Proposed Merger, whether or not it closes, will divert the attention of certain management and other key employees of the Company from ongoing business activities, including the pursuit of other opportunities that could be beneficial to the Company as an independent company.

If the Proposed Merger is not completed, these risks could materially affect the business and financial results of the Company and its stock price, including to the extent that the current market price of the Company’s common stock is positively affected by a market assumption that the Proposed Merger will be completed.

While the Proposed Merger is pending, the Company will be subject to business uncertainties and certain contractual restrictions that could adversely affect the business and operations of the Company.

In connection with the Proposed Merger, some customers, vendors, franchisees or other third parties of the Company may react unfavorably, including by delaying or deferring decisions concerning their business relationships or transactions with the Company, which could adversely affect the revenues, earnings, funds from operations, cash flows and expenses of the Company, regardless of whether the Proposed Merger is completed. In addition, due to certain restrictions in the Merger

34

Agreement on the conduct of business prior to completing the Proposed Merger, the Company may be unable (without prior written consent), during the pendency of the Proposed Merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial and may cause the Company to forego certain opportunities it might otherwise pursue. In addition, the pendency of the Proposed Merger may make it more difficult for the Company to effectively retain and incentivize key personnel and may cause distractions from the Company’s strategy and day-to-day operations for its current employees and management.

The Company will incur substantial transaction fees and merger-related costs in connection with the Proposed Merger that could adversely affect the business and operations of the Company if the Proposed Merger is not completed.

The Company expects to incur non-recurring transaction fees, which include legal and advisory fees and substantial merger-related costs associated with completing the Proposed Merger, and which could adversely affect the business operations of the Company if the Proposed Merger is not completed.

The termination fee and restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire the Company.

The Merger Agreement prohibits the Company from initiating, soliciting or proposing an Acquisition Proposal (as defined in the Merger Agreement) or knowingly encouraging, knowingly assisting or otherwise knowingly facilitating any Acquisition Proposal, subject to certain limited exceptions. The Merger Agreement also contains certain termination rights, including, but not limited to, the right of the Company to terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement), subject to and in accordance with the terms and conditions of the Merger Agreement, and provides that, upon termination of the Merger Agreement by the Company to enter into an Alternative Acquisition Agreement (as defined by the Merger Agreement) with respect to a Superior Proposal, the Company will be required to pay Parent a termination fee of $10,350,000 in cash. The termination fee and restrictions could discourage other companies from trying to acquire the Company even though those other companies might be willing to offer greater value to the Company’s stockholders than Parent has offered in the Proposed Merger.

Litigation against the Company or the members of the Company’s Board of Directors, could prevent or delay the completion of the Proposed Merger or result in the payment of damages following completion of the Proposed Merger.

It is a condition to the Proposed Merger that no injunction or other order preventing the consummation of the Proposed Merger shall have been issued by any court of competent jurisdiction or other governmental authority of competent jurisdiction and remain in effect. As of the date of this Quarterly Report, a lawsuit has been filed by a purported stockholder of the Company challenging the Proposed Merger or the other transactions contemplated by the Merger Agreement, which have named the Company and/or members of the Company’s Board of Directors as defendants. It is possible that additional lawsuits may be filed by the Company’s stockholders challenging the Proposed Merger. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Proposed Merger on the agreed-upon terms, such an injunction may delay the consummation of the Proposed Merger in the expected timeframe, or may prevent the Proposed Merger from being consummated at all. Whether or not any plaintiff’s claim is successful, this type of litigation can result in significant costs and divert management’s attention and resources from the closing of the Proposed Merger and ongoing business activities, which could adversely affect the operations of the Company.

If the Proposed Merger is not consummated by November 10, 2023, or, under certain conditions, December 13, 2023, either the Company or Parent may terminate the Merger Agreement, subject to certain exceptions.

Either the Company or Parent may terminate the Merger Agreement if the Merger has not been consummated by November 10, 2023. However, this termination right will not be available to a party if that party failed to fulfill its obligations under the Merger Agreement and that failure was the proximate cause of the failure to consummate the Proposed Merger on time. In the event the Merger Agreement is terminated by either party due to the failure of the Proposed Merger to close by November 10, 2023, the Company will have incurred significant costs and will have diverted significant management focus and resources from other strategic opportunities and ongoing business activities without realizing the anticipated benefits of the Proposed Merger.

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ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of our equity securities for the period covered by this Quarterly Report.

SHARE REPURCHASES

On May 18, 2022, our Board of Directors approved a stock repurchase program under which we may repurchase up to $500.0 million of our outstanding shares of common stock over the next three years. The repurchase program authorizes shares to be repurchased from time to time in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The actual timing, number and value of shares, if any, repurchased under the program will be determined by management in its discretion and will depend on a number of factors, including, among others, the availability of stock, general market and business conditions, the trading price of our common stock and applicable legal requirements. This plan supersedes our previous stock repurchase programs. There was no share repurchase activity during the six months ended July 1, 2023.

As of July 1, 2023, we had approximately $327.5 million remaining under the stock repurchase program approved by our Board of Directors.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4

MINE SAFETY DISCLOSURES

None.

ITEM 5

OTHER INFORMATION

During the three months ended July 1, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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ITEM 6

EXHIBITS

We have filed the following exhibits as part of this Quarterly Report:

Exhibit Number	Exhibit Description	Filed  Herewith	Incorporated by  Reference
2.1	Agreement and Plan of Merger, dated as of May 10, 2023, by and among Franchise Group, Inc., Freedom VCM, Inc. and Freedom VCM Subco, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K, File No. 001-35588 filed on May 11, 2023).		X
3.1	Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed on December 19, 2018).		X
3.1.1	Certificate of Designation of the Voting Non-Economic Preferred Stock of Liberty Tax, Inc. filed with the Secretary of State of the State of Delaware July 10, 2019 (incorporated by reference to Exhibit 3.1, File No. 001-35588 filed on July 11, 2019).		X
3.1.2	Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed September 19, 2019).		X
3.1.3	Certificate of Increase of the Number of Shares of Voting Non-Economic Preferred Stock of Franchise Group, Inc., filed with the Secretary of State of the State of Delaware on September 30, 2019 (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed October 1, 2019).		X
3.1.4	Certificate of Designation designating the 7.50% Series A Cumulative Perpetual Preferred Stock of Franchise Group, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed September 18, 2020).		X
3.1.5	Certificate of Increase of the Number of Shares of 7.50% Series A Cumulative Perpetual Preferred Stock of Franchise Group, Inc., filed with the Secretary of State of the State of Delaware on January 15, 2021 (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed January 15, 2021).		X
3.2	Third Amended and Restated Bylaws of Franchise Group, Inc. (incorporated by reference to Exhibit 3.2 to Form 10-K, File No. 001-35588 filed on February 28, 2023).		X
10.1	Voting Agreement, dated as of May 10, 2023, by and among Franchise Group, Inc., Freedom VCM, Inc. and each of the persons set forth on the signature pages thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on May 11, 2023).		X

37

10.2	Rollover Agreement, dated as of May 10, 2023, by and among Freedom VCM Holdings, LLC and each of the persons set forth on the signature pages thereto (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed on May 11, 2023).		X
10.3	Limited Guarantee, dated as of May 10, 2023, by B. Riley Financial, Inc. in favor of Franchise Group, Inc. (incorporated by reference to Exhibit 10.3 to Form 8-K, File No. 001-35588 filed on May 11, 2023).		X
31.1	Certification of Chief Executive Officer	X
31.2	Certification of Chief Financial Officer	X
32.1	Section 1350 Certification (Chief Executive Officer)	X
32.2	Section 1350 Certification (Chief Financial Officer)	X
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2023, formatted in Inline XBRL, filed herewith: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations (unaudited), (iii) the Condensed Consolidated Statements of Stockholders’ Equity (unaudited), (iv) the Condensed Consolidated Statements of Cash Flows (unaudited) and (v) the Notes to Unaudited Condensed Consolidated Financial Statements	X
104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2023, formatted in Inline XBRL (included with Exhibit 101)	X
*All schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish the omitted disclosure schedules to the SEC upon request by the SEC; provided, however, that the Company reserves the right to request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		FRANCHISE GROUP, INC. (Registrant)
August 8, 2023	By:		/s/ Brian R. Kahn
			Brian R. Kahn Chief Executive Officer and Director (Principal Executive Officer)
August 8, 2023	By:		/s/ Eric F. Seeton
			Eric F. Seeton Chief Financial Officer (Principal Financial and Accounting Officer)

39

EX-31.1

Exhibit 31.1

I, Brian R. Kahn, certify that:

1. I have reviewed this quarterly report on Form 10-Q of FRANCHISE GROUP, INC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 8, 2023	By:	/s/ Brian R. Kahn
		Brian R. Kahn
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, Eric F. Seeton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of FRANCHISE GROUP, INC.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 8, 2023	By:	/s/ Eric F. Seeton
		Eric F. Seeton
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franchise Group, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian R. Kahn, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 8, 2023	By:	/s/ Brian R. Kahn
		Brian R. Kahn
		Chief Executive Officer
		(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franchise Group, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 1, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric F. Seeton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 8, 2023	By:	/s/ Eric F. Seeton
		Eric F. Seeton
		Chief Financial Officer
		(Principal Financial Officer)

XML

Cover - shares	6 Months Ended
	Jul. 01, 2023	Aug. 03, 2023
Entity Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jul. 01, 2023
Document Transition Report	false
Entity File Number	001-35588
Entity Registrant Name	Franchise Group, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-3561876
Entity Address, Address Line One	109 Innovation Court, Suite J
Entity Address, City or Town	Delaware,
Entity Address, State or Province	OH
Entity Address, Postal Zip Code	43015
City Area Code	740)
Local Phone Number	-2222
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		35,191,461
Entity Central Index Key	0001528930
Amendment Flag	false
Current Fiscal Year End Date	--12-30
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Common Stock [Member]
Entity Information [Line Items]
Title of 12(b) Security	Common stock, par value $0.01 per share
Trading Symbol	FRG
Security Exchange Name	NASDAQ
Series A Preferred Stock
Entity Information [Line Items]
Title of 12(b) Security	7.50% Series A Cumulative Preferred Stock, par value $0.01 per share and liquidation preference of $25.00 per share
Trading Symbol	FRGAP
Security Exchange Name	NASDAQ

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022
Revenues:
Revenue from Contract with Customer, Excluding Assessed Tax	$ 1,038,686	$ 1,094,998	$ 2,143,507	$ 2,230,467
Operating expenses:
Cost of Revenue	632,623	612,253	1,301,732	1,240,362
Selling, general, and administrative expenses	383,563	405,639	770,804	782,633
Goodwill, Impairment Loss	0	0	75,000	0
Total operating expenses	1,016,186	1,017,892	2,147,536	2,022,995
Loss from operations	22,500	77,106	(4,029)	207,472
Other income (expense):
Bargain purchase gain	6	3,581	6	3,514
Sale and Leaseback Transaction, Gain (Loss), Net	0	49,854	0	49,854
Foreign currency transaction gain	(3,783)	12,853	(5,617)	(9,122)
Interest expense	(83,364)	(88,839)	(170,493)	(181,167)
Income tax benefit	(13,845)	13,572	(21,020)	17,250
Comprehensive income (loss)	(50,796)	40,983	(159,113)	53,301
Other comprehensive income (loss)	0	0	0	0
Loss before income taxes	$ (64,641)	$ 54,555	$ (180,133)	$ 70,551
Net income (loss) per share:
Weighted Average Number of Shares Outstanding, Basic	35,177,146	40,356,299	35,089,660	40,331,855
Weighted Average Number of Shares Outstanding, Diluted	35,177,146	41,126,605	35,089,660	41,148,668
Earnings Per Share, Basic	$ (1.50)	$ 0.96	$ (4.66)	$ 1.22
Earnings Per Share, Diluted	$ (1.50)	$ 0.94	$ (4.66)	$ 1.19
Product [Member]
Revenues:
Revenue from Contract with Customer, Excluding Assessed Tax	$ 916,112	$ 952,009	$ 1,892,920	$ 1,931,173
Operating expenses:
Cost of Revenue	621,482	600,780	1,278,386	1,217,364
Service [Member]
Revenues:
Revenue from Contract with Customer, Excluding Assessed Tax	115,501	135,648	236,069	283,929
Operating expenses:
Cost of Revenue	8,634	8,732	18,213	17,395
Rental
Revenues:
Revenue from Contract with Customer, Excluding Assessed Tax	7,073	7,341	14,518	15,365
Operating expenses:
Cost of Revenue	$ 2,507	$ 2,741	$ 5,133	$ 5,603

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 01, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 106,264	$ 80,783
Receivables:
Total Receivables, Current, Net	256,003	170,162
Accounts Receivable from Securitization	191,826	292,913
Inventory, Net	746,753	736,841
Assets Held-for-sale, Not Part of Disposal Group, Current	7,633	8,528
Other current assets	28,238	27,272
Total current assets	1,336,717	1,316,499
Property, equipment, and software, net	238,922	223,718
Equity Securities, FV-NI, Noncurrent	5,977	11,587
Accounts and Financing Receivable, after Allowance for Credit Loss, Noncurrent	10,808	11,735
Goodwill	663,481	737,402
Operating Lease, Right-of-Use Asset	890,611	890,949
Indefinite-Lived Trade Names	222,703	222,703
Other intangible assets, net	111,432	116,799
Other assets	65,398	59,493
Total assets	3,571,861	3,630,412
Current liabilities:
Current installments of long-term obligations	13,192	6,935
Secured Debt, Current	341,144	340,021
Operating Lease, Liability, Current	179,250	179,519
Accounts payable and accrued expenses	407,543	376,895
Deferred revenue - current	34,827	40,541
Total current liabilities	975,956	943,911
Long-term Debt and Lease Obligation	729,870	720,474
Long-term Debt, Excluding Current Maturities	1,526,605	1,374,479
Secured Long-term Debt, Noncurrent	44,423	107,448
Other Liabilities, Noncurrent	69,576	62,720
Total liabilities	3,346,430	3,209,032
Equity:
Additional paid-in capital	310,654	311,069
Retained earnings	(85,620)	109,917
Total equity	225,431	421,380
Total liabilities and equity	3,571,861	3,630,412
Asset-backed Securities, Securitized Loans and Receivables
Receivables:
Total Receivables, Current, Net		292,913
Accounts Receivable, after Allowance for Credit Loss, Noncurrent	25,812	39,527
Current receivables, net
Receivables:
Total Receivables, Current, Net	256,003	170,162
Special voting preferred stock
Equity:
Preferred stock	45	45
Class A common stock
Equity:
Common stock	$ 352	$ 349

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Jul. 01, 2023	Dec. 31, 2022
Accounts Receivable, Allowance for Credit Loss	$ (8,204,000)	$ (4,106,000)
allowance for credit losses	(65,519,000)	(57,095,000)
Allowance for Credit Losses, Securitized Receivables, Noncurrent	(8,816,000)	(7,705,000)
Accounts Receivable, Allowance for Credit Loss, Noncurrent	(1,070,000)	(892,000)
Finite-Lived Intangible Assets, Accumulated Amortization	$ 29,734,000	$ 24,003,000
Common Stock, Shares Authorized	180,000,000	180,000,000
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Preferred Stock, Shares Issued	4,541,125	4,541,125
Class A common stock
Common Stock, Value, Issued	$ 352,000	$ 349,000
Common Stock [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares issued	35,186,943
Common Stock, Shares, Outstanding	35,186,943

XML

Condensed Consolidated Statement of Stockholders Equity Statement - USD ($) shares in Thousands	Total	Common Stock [Member]	Preferred Stock [Member]	Parent [Member]	Parent [Member] Cumulative Effect, Period of Adoption, Adjustment	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Retained Earnings [Member] Cumulative Effect, Period of Adoption, Adjustment
Shares, Outstanding, Beginning Balance at Dec. 25, 2021		40,297	4,541
Equity, Attributable to Parent, Beginning Balance at Dec. 25, 2021		$ 403,000	$ 45,000	$ 762,831,000		$ 475,396,000	$ 286,987,000
Net Income (Loss) Attributable to Parent				53,301,000			53,301,000
Stock Issued During Period, Value, Stock Options Exercised				180,000		180,000
Stock Issued During Period, Shares, Acquisitions		47
Adjustment to APIC, Share-based Compensation, Requisite Service Period Recognition				10,484,000		10,483,000
Dividends	$ (53,685,000)						(53,685,000)
Dividends, Preferred Stock, Cash				(4,257,000)			(4,257,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		15
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture		$ 1,000
Equity, Attributable to Parent, Ending Balance at Jun. 25, 2022		$ 404,000	$ 45,000	768,854,000		486,059,000	282,346,000
Shares, Outstanding, Ending Balance at Jun. 25, 2022		40,359	4,541
Shares, Outstanding, Beginning Balance at Mar. 26, 2022		40,354	4,541
Equity, Attributable to Parent, Beginning Balance at Mar. 26, 2022		$ 404,000	$ 45,000	751,686,000		480,628,000	270,609,000
Net Income (Loss) Attributable to Parent				40,983,000			40,983,000
Stock Issued During Period, Shares, Acquisitions		5
Adjustment to APIC, Share-based Compensation, Requisite Service Period Recognition				5,431,000		5,431,000
Dividends	(27,117,000)						(27,117,000)
Dividends, Preferred Stock, Cash				(2,129,000)			(2,129,000)
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture		$ 0
Equity, Attributable to Parent, Ending Balance at Jun. 25, 2022		$ 404,000	$ 45,000	768,854,000		486,059,000	282,346,000
Shares, Outstanding, Ending Balance at Jun. 25, 2022		40,359	4,541
Shares, Outstanding, Beginning Balance at Dec. 31, 2022		34,926	4,541
Equity, Attributable to Parent, Beginning Balance at Dec. 31, 2022	421,380,000	$ 349,000	$ 45,000	421,380,000		311,069,000	109,917,000
Net Income (Loss) Attributable to Parent				(159,113,000)			(159,113,000)
Stock Issued During Period, Value, Stock Options Exercised		$ 1,000		491,000		490,000
Stock Issued During Period, Shares, Acquisitions		213
Adjustment to APIC, Share-based Compensation, Requisite Service Period Recognition				(903,000)		(905,000)
Dividends	(22,189,000)						(22,189,000)
Dividends, Preferred Stock, Cash				(4,257,000)			(4,257,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		48
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture		$ 2,000
Equity, Attributable to Parent, Ending Balance at Jul. 01, 2023	225,431,000	$ 352,000	$ 45,000	225,431,000		310,654,000	(85,620,000)
Shares, Outstanding, Ending Balance at Jul. 01, 2023		35,187	4,541
Shares, Outstanding, Beginning Balance at Apr. 01, 2023		35,149	4,541
Equity, Attributable to Parent, Beginning Balance at Apr. 01, 2023		$ 351,000	$ 45,000	277,647,000	$ (9,978,000)	310,160,000	(32,909,000)	$ (9,978,000)
Net Income (Loss) Attributable to Parent				(50,796,000)			(50,796,000)
Stock Issued During Period, Value, Stock Options Exercised		$ 1,000		361,000		360,000
Stock Issued During Period, Shares, Acquisitions		5
Adjustment to APIC, Share-based Compensation, Requisite Service Period Recognition				134,000		134,000
Dividends	214,000						214,000
Dividends, Preferred Stock, Cash				(2,129,000)			(2,129,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		33
Shares Issued, Value, Share-based Payment Arrangement, after Forfeiture		$ 0
Equity, Attributable to Parent, Ending Balance at Jul. 01, 2023	$ 225,431,000	$ 352,000	$ 45,000	$ 225,431,000		$ 310,654,000	$ (85,620,000)
Shares, Outstanding, Ending Balance at Jul. 01, 2023		35,187	4,541

XML

Condensed Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022
Operating Activities
Net loss	$ (159,113,000)	$ 53,301,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses for accounts receivable	45,743,000	56,840,000
Goodwill, Impairment Loss	75,000,000	0
Other Depreciation and Amortization	44,282,000	42,236,000
Amortization of Debt Issuance Costs	5,788,000	12,032,000
Amortization of Debt Discount (Premium)	48,630,000	59,618,000
Stock-based compensation expense	2,829,000	10,853,000
Change in fair value of investment	5,611,000	10,855,000
Gain (Loss) on Sale of Intangible and Other Assets	(42,000)	(55,883,000)
Gain (Loss) on Disposition of Other Assets	262,000	(2,182,000)
Changes in other assets and liabilities	(30,905,000)	(238,903,000)
Net Cash Provided by (Used in) Operating Activities, Continuing Operations	38,085,000	(51,233,000)
Investing Activities
Assets Acquired from Franchisees and Area Developers	(28,760,000)	(21,809,000)
Proceeds from Sale of Intangible Assets	3,379,000	240,558,000
Payments to Acquire Businesses, Net of Cash Acquired	(3,682,000)	(3,754,000)
Payments received on operating loans to franchisees		1,000,000
Net cash provided by (used in) investing activities	(29,063,000)	215,995,000
Financing Activities
Dividends paid	(49,806,000)	(54,665,000)
Proceeds from Long-term Lines of Credit	538,000,000	88,500,000
Repayments of Other Long-term Debt	(389,389,000)	(358,172,000)
Finance Lease, Principal Payments	(3,180,000)	(1,383,000)
Proceeds from Issuance of Secured Debt	133,398,000	130,556,000
Repayments of Secured Debt	(192,030,000)	(166,653,000)
Payment for debt issue costs	(17,393,000)	(431,000)
Payment, Tax Withholding, Share-based Payment Arrangement	(3,240,000)	(190,000)
Net cash provided by (used in) financing activities	16,360,000	(362,438,000)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect	25,382,000	(197,676,000)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	106,632,000	95,038,000
Cash and Cash Equivalents, at Carrying Value, Ending Balance	106,264,000	95,038,000
Supplemental disclosures of cash flow information:
Cash paid for interest, net of capitalized interest of $4 and $3, respectively	4,048,000	17,842,000
Cash paid for taxes, net of refunds	67,075,000	42,013,000
Cash Paid for Interest on Secured Debt	43,414,000	48,506,000
Payments to Acquire Software	2,461,000	2,751,000
Capital Expenditures Incurred but Not yet Paid	14,147,000	0
Restricted Cash, Noncurrent	368,000	0
Restricted Cash and Cash Equivalents	$ 106,632,000	$ 95,038,000

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Organization and Significant Accounting Policies

3 Months Ended

Jul. 01, 2023

Accounting Policies [Abstract]

Organization and Significant Accounting Policies

Basis of Presentation

Unless otherwise stated, references to the “Company,” “we,“ “us,” and “our” in this Quarterly Report on Form 10-Q (this “Quarterly Report”) refer to Franchise Group, Inc. and its direct and indirect subsidiaries on a consolidated basis. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2022 that was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023 (the “Form 10-K”).

In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. The December 31, 2022 balance sheet information was derived from the audited financial statements as of that date.

Reclassifications

Certain prior year amounts within the footnotes have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, “Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which changes how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard replaces the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables.

Effective January 1, 2023, the Company adopted ASU 2016-13 and applied a cumulative-effect adjustment to retained earnings. The Company has reviewed its entire portfolio of assets recognized on the balance sheet as of December 31, 2022 and identified customer receivables and securitized receivables as the materially impacted assets within the scope of ASC 326. Upon adoption of ASC 326 the Company recorded a net decrease to retained earnings of $10.0 million as of January 1, 2023. Prior period amounts were not adjusted and will continue to be reported under the previous accounting standards.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as a result of the adoption of ASC 326 were as follows:

	Impact of Adoption of ASC 326
(In thousands)	Balance at December 31, 2022		Adjustments due to ASC 326		Balance at January 1, 2023
Assets
Current receivables, net	$	170,162	$	(654)	$	169,508
Current securitized receivables, net	292,913		(11,619)		281,294
Non-current securitized receivables, net	39,527		(1,568)		37,959
Deferred income taxes	38,528		3,863		42,391
Stockholders’ Equity
Retained earnings	$	109,917	$	(9,978)	$	99,939

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Acquisitions

6 Months Ended

Jul. 01, 2023

Business Combinations [Abstract]

Acquisitions

(2) Acquisitions and Business Combinations

On May 10, 2023, the Company announced that it has entered into a definitive agreement and plan of merger with Freedom VCM, Inc., a Delaware Corporation (“Parent”) and Freedom VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the “Merger Agreement”), pursuant to which members of the senior management team of the Company led by Brian Kahn, the Company’s Chief Executive Officer (collectively with affiliates and related parties of the senior management team, the “Management Group”), have agreed to acquire approximately 64.0% of the Company’s issued and outstanding common stock that the Management Group does not presently own or control (the “Proposed Merger”). Under the terms of the Proposed Merger, the Company’s common stockholders, other than the Management Group, are entitled to receive $30.00 in cash for each share of the Company’s common stock they hold. On July 19, 2023, the Company announced a notice of redemption (the “Redemption”) for all outstanding shares of its 7.50% Series A Cumulative Perpetual Preferred Stock in connection with the Merger Agreement. The Company's preferred stock will be redeemed in cash at a redemption price equal to $25.00 per share plus any accrued and unpaid dividends. The Redemption is contingent upon the Company’s successful completion of the Proposed Merger and, in the event the Proposed Merger does not occur and the Merger Agreement is terminated in accordance with its terms, the notice of redemption will be deemed rescinded and the Redemption will not occur.

The Proposed Merger is anticipated to close in the second half of 2023, subject to satisfaction or waiver of the closing conditions, including approval by regulatory authorities and the Company’s stockholders, including approval by a majority of the shares of common stock of the Company not owned or controlled by the Management Group. Upon completion of the Proposed Merger, the Company will become a private company and will no longer be publicly listed or traded on Nasdaq.

Additional information about the Merger Agreement and the Proposed Merger is set forth in the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on July 14, 2023.

Treatment of Company Equity Awards in Connection with Proposed Merger

Treatment of Stock Options. At the effective time of the Proposed Merger (the “Effective Time”), any outstanding stock options will exercise and entitle the holder of such stock option to receive, without interest, an amount in cash equal to the product of multiplying (A) the number of shares of the Company’s common stock subject to such stock option as of immediately prior to the Effective Time and (B) the excess, if any, of the per share merger consideration over the exercise price per share of the Company’s common stock subject to such stock option.

Treatment of RSUs. At the Effective Time, any outstanding RSU will vest and entitle the holder of such RSU to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of the Company’s common stock subject to such RSU immediately prior to the Effective Time and (B) the per share merger consideration, therefore, stock-based compensation will cease at that time.

Treatment of PRSUs. At the Effective Time, any outstanding PRSU will vest and entitle the holder of such PRSU to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of the Company’s common stock subject to such PRSU immediately prior to the Effective Time and (B) the per share merger consideration, therefore, stock-based compensation will cease at that time.

Treatment of MPRSUs. At the Effective Time, each outstanding MPRSU will, automatically and without any action on the part of the holder thereof, be cancelled for no consideration, payment or right to consideration or payment, therefore, stock-based compensation will cease at that time.

2019 Omnibus Incentive Plan. The Company expects to terminate the 2019 Omnibus Incentive Plan at the Effective Time of the Proposed Merger.

The Company continually looks to diversify and grow its portfolio of brands through acquisitions. On February 28, 2023, the Company’s Pet Supplies Plus segment acquired 20 stores through bankruptcy proceedings of a third party for approximately $3.7 million. The components of the preliminary purchase price allocation are not presented herein due to the immateriality of the transaction to the Company overall. The Company’s Pet Supplies Plus segment subsequently franchised 12 of the 20 acquired stores.

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Notes and Accounts Receivable

6 Months Ended

Jul. 01, 2023

Receivables [Abstract]

Accounts and Notes Receivable

Accounts and Notes Receivable

Current and non-current receivables as of July 1, 2023 and December 31, 2022 are presented in the Condensed Consolidated Balance Sheets as follows:

(In thousands)	July 1, 2023		December 31, 2022
Trade accounts receivable	$	33,924	$	40,165
Customer accounts receivable	128,004		56,639
Franchisee accounts receivable	51,969		46,778
Notes and interest receivable	2,064		2,361
Income tax receivable	48,246		28,325
Allowance for credit losses	(8,204)		(4,106)
Current receivables, net	256,003		170,162
Notes receivable, non-current	11,878		12,627
Allowance for credit losses, non-current	(1,070)		(892)
Non-current receivables, net	10,808		11,735
Total receivables	$	266,811	$	181,897

Allowance for Credit Losses

The adequacy of the allowance for credit losses is assessed on a quarterly basis and adjusted as deemed necessary. Receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for credit losses. Expected credit losses for trade and franchisee accounts receivable are immaterial. Notes receivable are due from the Company’s franchisees and are collateralized by the underlying franchise. The debtors’ ability to repay the notes is dependent upon both the performance of the franchisee’s industry as a whole and the individual franchise areas.

Activity in the allowance for credit losses for trade, customer, and franchisee accounts receivable and notes receivable for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	4,998	$	6,192
Cumulative effect of adopted accounting standards	654		—
Provision for credit loss expense (benefit)	3,683		10,224
Write-offs, net of recoveries	(61)		(109)
Balance at end of period	$	9,274	$	16,307

Past due amounts are primarily attributable to trade and franchisee accounts receivable that have been generated over the past year and are past due by 1-30 days. The delinquency distribution of accounts and notes receivable past due at July 1, 2023 were as follows:

	July 1, 2023
(In thousands)	Past due		Current		Total receivables
Accounts receivable	$	27,993	$	185,904	$	213,897
Notes and interest receivable	—		13,942		13,942
Total accounts, notes and interest receivable	$	27,993	$	199,846	$	227,839

Securitized Accounts Receivable

In order to monetize its customer credit receivables portfolio, the Company’s Badcock Home Furniture & more (“Badcock”) segment sells beneficial interests in customer revolving lines of credit pursuant to securitization transactions. The Company securitized an additional $133.4 million of its customer credit receivables portfolio during the six months ended July 1, 2023. For additional details regarding these securitizations, refer to “Note 5 – Securitized Accounts Receivable” in the Form 10-K.

When securitized receivables are delinquent for approximately one year, the estimated uncollectible amount from the customer is written off and the corresponding securitized accounts receivable is reduced. Financial instruments that could potentially subject the Company to concentrations of credit risk consist of accounts receivable with its customers. The Company manages such risk by managing the customer accounts receivable portfolio using delinquency as a key credit quality indicator. Management believes the allowance is adequate to cover the Company’s credit loss exposure. Due to their non-recourse nature, the Company will record a gain on extinguishment for any debt secured by uncollectible accounts receivable in the future when the debt meets the extinguishment requirements in accordance with ASC 470, “Debt”.

Activity in the allowance for credit losses on securitized accounts for the six months ended July 1, 2023 and June 25, 2022 was as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	64,800	$	—
Cumulative effect of adopted accounting standards	13,187		—
Provision for credit loss expense	42,036		46,560
Write-offs, net of recoveries	(45,688)		(32,293)
Balance at end of period	$	74,335	$	14,267

Current amounts include receivables for customers who have made a payment in the past 30 days. Any customers who have not made a required payment within the last 30 days are considered past due. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by year of origination as of July 1, 2023:

Delinquency Bucket	2023		2022		2021		Prior		Total
(in thousands)
Current	$	55,147	$	106,332	$	12,030	$	4,243	$	177,752
1-30	6,740		19,626		3,752		1,298		31,416
31-60	2,376		7,626		2,369		951		13,322
61-90	1,580		5,899		2,069		812		10,360
91+	2,314		43,742		18,929		7,303		72,288
Total	$	68,157	$	183,225	$	39,149	$	14,607	$	305,138

Servicing revenue, interest income and interest expense generated from securitized receivables for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Securitization servicing revenue	$	6,291	$	4,972
Interest income from securitization1	56,986		114,156
Interest expense, debt secured by accounts receivable	(88,144)		(128,208)

1 Includes interest income from Badcock customer receivables (refer to “Note 3 – Accounts and Notes Receivable”) and securitized receivables.

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Goodwill and Intangible Assets

6 Months Ended

Jul. 01, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company performs impairment tests for goodwill as of the end of July of each fiscal year and between annual impairment tests if an event occurs or circumstances change that would more likely than not reduce the fair values of the Company’s reporting units below their carrying values. As a result of the Company’s American Freight segment’s underperformance compared to projections for the three months ended April 1, 2023, as well as current macroeconomic conditions, the Company updated its long-term forecasts. The Company performed an interim goodwill impairment quantitative assessment as of April 1, 2023, and based on the results of the analysis, the Company recorded a non-cash goodwill impairment charge of $75.0 million, which was recorded in “Goodwill impairment” in the accompanying Condensed Consolidated Statements of Operations. Other than the American Freight segment’s accumulated goodwill impairment of $70.0 million as of December 31, 2022, no other reporting units had accumulated goodwill impairment losses recorded.

The estimated fair value of the Company’s American Freight reporting unit was calculated using a weighted-average of values determined from an income approach and a market approach. The income approach involves estimating the fair value of each reporting unit by discounting its estimated future cash flows using a discount rate that would be consistent with a market participant’s assumption. The market approach bases the fair value measurement on information obtained from observed stock prices of public companies and recent merger and acquisition transaction data of comparable entities. In order to estimate the fair value of goodwill, management must make certain estimates and assumptions that affect the total fair value of the reporting unit including, among other things, an assessment of market conditions, projected cash flows, discount rates and growth rates. Management’s estimates of projected cash flows related to the reporting unit include, but are not limited to, future earnings of the reporting unit, assumptions about the use or disposition of assets included in the reporting unit, estimated remaining lives of those assets, and future expenditures necessary to maintain the assets’ existing service potential. The assumptions in the fair value measurement reflect the current market environment, industry-specific factors and company-specific factors. A change in assumptions used in American Freight’s quantitative analysis (e.g. projected cash flows, discount rates and growth rates) could result in the reporting unit’s estimated fair value being less than the carrying value. If American Freight is unable to achieve its current financial forecast, the Company may be required to record an impairment charge in a future period related to its goodwill. As of July 1, 2023, American Freight’s goodwill totaled $225.8 million.

Changes in the carrying amount of goodwill for the six months ended July 1, 2023 are as follows:

	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy’s		Sylvan		Total
Balance as of December 31, 2022	$	1,277	$	336,791	$	300,829	$	79,099	$	19,406	$	737,402
Acquisitions	—		3,690		—		—		—		3,690
Goodwill impairment	—		—		(75,000)		—		—		(75,000)
Disposals and purchase accounting adjustments	—		(2,611)		—		—		—		(2,611)
Balance as of July 1, 2023	$	1,277	$	337,870	$	225,829	$	79,099	$	19,406	$	663,481

Components of intangible assets as of July 1, 2023 and December 31, 2022 were as follows:

	July 1, 2023
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(17,995)	$	78,010
Customer contracts	42,578		(10,752)		31,826
Other intangible assets	2,583		(987)		1,596
Total intangible assets	$	141,166	$	(29,734)	$	111,432

	December 31, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(14,348)	$	81,657
Customer contracts	42,484		(8,878)		33,606
Other intangible assets	2,313		(777)		1,536
Total intangible assets	$	140,802	$	(24,003)	$	116,799

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Revenue Revenue (Notes)

3 Months Ended

Jul. 01, 2023

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customer

(6) Revenue

For details regarding the principal activities from which the Company generates its revenue, refer to “Note 1 – Description of Business and Summary of Significant Accounting Policies Presentation” in the Form 10-K. For more detailed information regarding reportable segments, refer to “Note 13 – Segments” in this Quarterly Report. The following represents the disaggregated revenue by reportable segments for the three months ended July 1, 2023:

	Three Months Ended
	July 1, 2023
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy’s		Sylvan		Consolidated
Retail sales	$	303,809	$	162,310	$	123,450	$	171,104	$	565	$	5	$	761,243
Wholesale sales	611		150,293		—		3,965		—		—		154,869
Total product revenue	304,420		312,603		123,450		175,069		565		5		916,112
Royalties and advertising fees	201		11,568		—		806		4,657		11,388		28,620
Financing revenue	—		—		659		11,511		—		—		12,170
Interest income	—		78		20,478		177		—		—		20,733
Interest income from amortization of original purchase discount	—		—		6,032		—		—		—		6,032
Warranty and damage revenue	—		—		11,753		8,667		1,498		—		21,918
Other revenues	106		8,534		9,849		7,197		26		316		26,028
Total service revenue	307		20,180		48,771		28,358		6,181		11,704		115,501
Rental revenue, net	—		—		—		—		7,073		—		7,073
Total rental revenue	—		—		—		—		7,073		—		7,073
Total revenue	$	304,727	$	332,783	$	172,221	$	203,427	$	13,819	$	11,709	$	1,038,686

The following represents the disaggregated revenue by reportable segments for the six months ended July 1, 2023:

	Six Months Ended
	July 1, 2023
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	624,406	$	325,569	$	255,706	$	373,253	$	1,289	$	13	$	1,580,236
Wholesale sales	1,393		302,275		—		9,016		—		—		312,684
Total product revenue	625,799		627,844		255,706		382,269		1,289		13		1,892,920
Royalties and advertising fees	380		22,452		—		1,602		9,840		21,268		55,542
Financing revenue	—		—		1,157		21,438		—		—		22,595
Interest income	—		161		42,717		354		—		—		43,232
Interest income from amortization of original purchase discount	—		—		14,269		—		—		—		14,269
Warranty and damage revenue	—		—		24,057		19,255		3,062		—		46,374
Other revenues	250		16,397		21,602		15,071		77		660		54,057
Total service revenue	630		39,010		103,802		57,720		12,979		21,928		236,069
Rental revenue, net	—		—		—		—		14,518		—		14,518
Total rental revenue	—		—		—		—		14,518		—		14,518
Total revenue	$	626,429	$	666,854	$	359,508	$	439,989	$	28,786	$	21,941	$	2,143,507

The following represents the disaggregated revenue by reportable segments for the three months ended June 25, 2022:

	Three Months Ended
	June 25, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy’s		Sylvan		Consolidated
Retail sales	$	306,183	$	151,421	$	161,195	$	194,789	$	661	$	13	$	814,262
Wholesale sales	314		134,196		—		3,237		—		—		137,747
Total product revenue	306,497		285,617		161,195		198,026		661		13		952,009
Royalties and advertising fees	207		9,395		—		516		4,603		10,668		25,389
Financing revenue	—		—		—		10,860		—		—		10,860
Interest income	—		67		24,216		191		—		—		24,474
Interest income from amortization of original purchase discount	—		—		24,671		—		—		—		24,671
Warranty and damage revenue	—		—		13,046		10,677		1,480		—		25,203
Other revenues	193		7,654		10,171		6,158		44		831		25,051
Total service revenue	400		17,116		72,104		28,402		6,127		11,499		135,648
Rental revenue, net	—		—		—		—		7,341		—		7,341
Total rental revenue	—		—		—		—		7,341		—		7,341
Total revenue	$	306,897	$	302,733	$	233,299	$	226,428	$	14,129	$	11,512	$	1,094,998

The following represents the disaggregated revenue by reportable segments for the six months ended June 25, 2022:

	Six Months Ended
	June 25, 2022
(In thousands)	Vitamin Shoppe		Pet Supplies Plus		Badcock		American Freight		Buddy's		Sylvan		Consolidated
Retail sales	$	616,614	$	313,970	$	327,837	$	406,301	$	1,731	$	24	$	1,666,477
Wholesale sales	488		257,428		—		6,780		—				264,696
Total product revenue	617,102		571,398		327,837		413,081		1,731		24		1,931,173
Royalties and other franchise based fees	341		18,457		—		1,064		9,427		20,177		49,466
Financing revenue	—		—		—		19,034		—		—		19,034
Interest income	—		139		51,879		387		—		—		52,405
Interest income from amortization of original purchase discount	—		—		62,277		—		—		—		62,277
Warranty and damage revenue	—		—		26,591		22,156		3,084		—		51,831
Other revenues	408		13,952		20,974		12,121		106		1,355		48,916
Total service revenue	749		32,548		161,721		54,762		12,617		21,532		283,929
Rental revenue, net	—		—		—		—		15,365		—		15,365
Total rental revenue	—		—		—		—		15,365		—		15,365
Total revenue	$	617,851	$	603,946	$	489,558	$	467,843	$	29,713	$	21,556	$	2,230,467

Contract Balances

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers as of July 1, 2023 and December 31, 2022:

(In thousands)	July 1, 2023		December 31, 2022
Accounts receivable	$	213,897	$	143,582
Notes receivable	13,739		14,988
Customer deposits	$	16,394	$	20,816
Gift cards and loyalty programs	9,393		9,565
Deferred franchise fee revenue	24,010		22,175
Other deferred revenue	10,279		10,688
Total deferred revenue	$	60,076	$	63,244

Deferred revenue consists of (1) amounts received for merchandise of which customers have not yet taken possession, (2) gift card or store credits outstanding, and (3) loyalty reward program credits which are primarily recognized within one year following the revenue deferral. Deferred franchise fee revenue is recognized over the term of the agreement, which is between five and twenty years. The amount of revenue recognized in the period that was included in the contract liability balance at the beginning of the period is immaterial to the condensed consolidated financial statements.

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Income Taxes

3 Months Ended

Jul. 01, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Overview

For the three months ended July 1, 2023 and June 25, 2022, the Company had an effective tax rate of 21.4% and 24.9%, respectively. For the six months ended July 1, 2023 and June 25, 2022, the Company had an effective tax rate of 11.7% and 24.5%, respectively. The changes in the effective tax rate compared to the prior year are due to a current year projected pre-tax loss compared to prior year pre-tax income and a current year non-cash goodwill impairment charge that is nondeductible for tax purposes.

Tax Receivable Agreement

On July 10, 2019, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with the then-existing non-controlling interest holders (the “Buddy’s Members”) that provides for the payment by the Company to the Buddy’s Members of 40% of the cash savings, if any, in federal, state and local taxes that the Company realizes or is deemed to realize as a result of any increases in tax basis of the assets of Franchise Group New Holdco, LLC (“New Holdco”) resulting from future redemptions or exchanges of New Holdco units.

Payments will be made when such Tax Receivable Agreement related deductions actually reduce the Company’s income tax liability. No payments were made to the Buddy’s Members pursuant to the Tax Receivable Agreement during the six months ended July 1, 2023. Total amounts due under the Tax Receivable Agreement to the Buddy’s Members as of July 1, 2023 were $15.4 million, with $1.0 million in “Other current liabilities” and the remaining amount recorded in “Other non-current liabilities” in the accompanying Condensed Consolidated Balance Sheets. Pursuant to the Company’s election under Section 754 of the Internal Revenue Code, the Company has obtained an increase in its share of the tax basis in the net assets of

New Holdco when the New Holdco units were redeemed or exchanged by the non-controlling interest holders and other qualifying transactions. The Company has treated the redemptions and exchanges of New Holdco units by the non-controlling interest holders as direct purchases of New Holdco units for U.S. federal income tax purposes. This increase in tax basis will reduce the amounts that it would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.

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Stockholders' Equity

3 Months Ended

Jul. 01, 2023

Equity [Abstract]

Stockholders' Equity

Net Income (Loss) Per Share

Diluted net income (loss) per share is computed using the weighted-average number of common stock and, if dilutive, the potential common stock outstanding during the period. Potential common stock consists of the incremental common stock issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the calculations of basic and diluted net income (loss) per share:

	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income (loss) attributable to Franchise Group	$	(50,796)	$	40,983	$	(159,113)	$	53,301
Less: Preferred dividend declared	(2,129)		(2,129)		(4,257)		(4,257)
Adjusted net income (loss) available to Common Stockholders	$	(52,925)	$	38,854	$	(163,370)	$	49,044
Weighted-average common stock outstanding	35,177,146		40,356,299		35,089,660		40,331,855
Net dilutive effect of stock options and restricted stock	—		770,306		—		816,813
Weighted-average diluted shares outstanding	35,177,146		41,126,605		35,089,660		41,148,668
Net income (loss) per share:
Basic net income per share	$	(1.50)	$	0.96	$	(4.66)	$	1.22
Diluted net income per share	(1.50)		0.94		(4.66)		1.19

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Stock Compensation Plans

6 Months Ended

Jul. 01, 2023

Share-Based Payment Arrangement [Abstract]

Stock Compensation Plans

Stock Compensation Plans

For a discussion of our stock-based compensation plans, refer to “Note 12 – Stock Compensation Plans” in the Form 10-K.

Restricted Stock Units

The Company has awarded service-based restricted stock units (the “RSUs”) to its non-employee directors, officers and certain employees. The Company recognizes expense based on the estimated fair value of the RSUs granted over the vesting period on a straight-line basis. The fair value of RSUs is determined using the Company’s closing stock price on the date of the grant. At July 1, 2023, unrecognized compensation costs related to the RSUs were $6.8 million. These costs are expected to be recognized through fiscal year 2026.

The following table summarizes the status of the RSUs as of and changes during the six months ended July 1, 2023:

	Number of RSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	273,302	$	36.39
Granted	284,818	27.89
Vested	(55,751)	29.18
Canceled	(130,919)	30.59
Balance as of July 1, 2023	371,450	$	33.00

Performance Restricted Stock Units

The Company has awarded performance restricted stock units (the “PRSUs”) to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the PRSUs granted over the vesting period on a straight-line basis. The fair value of PRSUs is determined using the Company’s closing stock price on the date of the grant. At July 1, 2023, unrecognized compensation costs related to the PRSUs were $0.1 million. These costs are expected to be recognized through fiscal year 2025.

The following table summarizes the status of the PRSUs as of and changes during the six months ended July 1, 2023:

	Number of PRSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	364,857	$	32.92
Granted	217,088	33.79
Adjusted for performance results achieved(1)	154,904	24.84
Vested	(282,256)	24.82
Canceled	(86,475)	46.50
Balance as of July 1, 2023	368,118	$	33.05

(1) Represents an adjustment for performance results achieved related to outstanding 2020 PRSU shares that reached 200% achievement in March 2023.

Market-Based Performance Restricted Stock Units

The Company has awarded market-based performance restricted stock units (the “MPRSUs”) to its officers and certain employees. The Company recognizes expense based on the estimated fair value of the MPRSUs granted over the vesting period on a straight-line basis. The fair value of MPRSUs is determined using a Monte Carlo simulation valuation model to calculate grant date fair value. Compensation expense is recognized over the requisite service period using the proportionate amount of the award’s fair value that has been earned through service to date. Under GAAP, compensation expense is not reversed if the award target is not achieved. At July 1, 2023, unrecognized compensation costs related to the MPRSUs were $5.3 million. These costs are expected to be recognized through fiscal year 2024.

The following table summarizes the status of the MPRSUs as of and changes during the six months ended July 1, 2023:

	Number of MPRSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	840,926	$	21.77
Granted	—	—
Vested	—	—
Canceled	(125,500)	30.96
Balance as of July 1, 2023	715,426	$	20.16

Stock Options

The Company has awarded stock options to its non-employee directors and officers. As of July 1, 2023, there were 206,376 stock options outstanding. During the six months ended July 1, 2023, there were no stock options granted, 48,188 stock options exercised, and no stock options forfeited. The weighted-average exercise price of stock options outstanding was $9.32 per share as of July 1, 2023. All outstanding stock options will expire in fiscal years 2023 and 2024.

At July 1, 2023, there were zero non-vested stock options outstanding and there was no remaining unrecognized compensation cost related to vested stock options.

The following table summarizes information about stock options outstanding and exercisable at July 1, 2023:

	Options Outstanding and Exercisable
Range of exercise prices	Number	Weighted average exercise price		Weighted average remaining contractual life (in years)
$0.00 - $10.39	175,000	$	8.85	0.5
$10.40 - $11.97	17,487	11.93		1.2
$11.98 - $12.01	13,889	12.01		0.5
	206,376	$	9.32

Stock Compensation Expense

The Company recorded $2.8 million and $10.9 million in stock-based compensation expense during the six months ended July 1, 2023 and June 25, 2022, respectively.

Long-Term Incentive Plans

The Company has long-term incentive plans at various operating companies which are recorded as liabilities. Upon vesting, the awards granted under these plans may be settled in cash or shares of the Company’s stock at the Company’s discretion. The total aggregate liability for these plans as of July 1, 2023 is $12.7 million, recorded in “Other non-current liabilities” on the Condensed Consolidated Balance Sheets. During the six months ended July 1, 2023, total expense recognized related to these plans was $4.4 million.

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Related Party Transactions

3 Months Ended

Jul. 01, 2023

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The Company considers any of its directors, executive officers or beneficial owners of more than 5% of its common stock, or any member of the immediate family of the foregoing persons, to be related parties.

Messrs. Kahn and Laurence

Brian Kahn and Vintage Capital Management, LLC and its affiliates (“Vintage”), in aggregate, held approximately 34.8% of the aggregate voting power of the Company through their ownership of common stock as of July 1, 2023. Brian Kahn and Andrew Laurence are principals of Vintage. Mr. Kahn is a member of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Laurence is an Executive Vice President of the Company and served as a member of the Company’s Board of Directors until May 2021.

On May 10, 2023, the Company announced that it has entered into a definitive agreement and plan of merger with Freedom VCM, Inc., a Delaware corporation (“Parent”) and Freedom VCM Subco, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the “Merger Agreement”), pursuant to which members of the senior management team of the Company led by Brian Kahn, the Company’s Chief Executive Officer (collectively with affiliates and related parties of the senior management team, the “Management Group”), have agreed to acquire approximately 64% of the Company’s issued and outstanding common stock that the Management Group does not presently own or control (the “Proposed Merger”). For more detailed information regarding the Merger Agreement and Proposed Merger, refer to “Note 2 – Acquisitions and Business Combinations” in this Quarterly Report.

Buddy’s Franchises. Mr. Kahn’s brother-in-law owns eight Buddy’s franchises. All transactions between the Company’s Buddy’s segment and Mr. Kahn’s brother-in-law are conducted on a basis consistent with other franchisees.

Tax Receivable Agreement

Refer to “Note 8 – Income Taxes” for detail regarding the amounts due under the Tax Receivable Agreement to the Buddy’s Members.

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Commitments and Contingencies

3 Months Ended

Jul. 01, 2023

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s business, financial condition, cash flows, or results of operations.

The Company is party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

Refer to “Note 14 – Subsequent Events” for detail regarding litigation related to the Proposed Merger.

Guarantees

The Company remains secondarily liable under various real estate leases that were assigned to franchisees who acquired Pet Supplies Plus or Vitamin Shoppe stores from the Company. In the event of the failure of an acquirer to pay lease payments, the Company could be obligated to pay the remaining lease payments which extend through 2033 and in aggregate are $34.4 million and $30.2 million as of July 1, 2023 and December 31, 2022, respectively. In certain cases, the Company could attempt to recover from the franchisees’ personal assets should the Company be required to pay remaining lease obligations.

If the Company is required to make payments under any of these guarantees, the Company could seek to recover those amounts from the franchisees or in some cases their affiliates. The Company believes that payment under any of these guarantees is remote as of July 1, 2023.

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Segments (Notes)

3 Months Ended

Jul. 01, 2023

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

(13) Segments

The Company’s operations are conducted in six reportable business segments: Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy’s, and Sylvan. The Company defines its segments as those operations which results its chief operating decision maker regularly reviews to analyze performance and allocate resources.

The Vitamin Shoppe segment is an omnichannel specialty retailer and wellness lifestyle company with the mission of providing customers with the most trusted products, guidance, and services to help them become their best selves, however they define it. The Vitamin Shoppe segment offers one of the largest varieties of products among vitamin, mineral and supplement retailers. The broad product offering enables the company to provide customers with a depth of selection of products that may not be readily available at other specialty retailers or mass merchants, such as discount stores, supermarkets, drug stores and wholesale clubs. The Vitamin Shoppe continues to focus on improving the customer experience through the roll-out of initiatives including increasing customer engagement and personalization, redesigning the omnichannel experience (including in stores as well as through the internet and mobile devices), growing private brands and improving the effectiveness of pricing and promotions. Vitamin Shoppe is headquartered in Secaucus, New Jersey.

The Pet Supplies Plus segment is a leading omnichannel retail chain and franchisor of pet supplies and services. Pet Supplies Plus has a diversified revenue model comprised of Company-owned store revenue, franchise royalties and revenue generated by the wholesale distribution of products to its franchisees. Pet Supplies Plus offers a curated selection of premium brands, proprietary private labels and specialty products with retail price parity with online players. Additionally, Pet Supplies Plus offers grooming, pet wash and other services in most of its locations. The Pet Supplies Plus segment operates under the “Pet Supplies Plus” and "Wag N' Wash" brands and is headquartered in Livonia, Michigan.

The Badcock segment is a retailer of furniture, appliances, bedding, electronics, home office equipment, accessories and seasonal items in a showroom format. Additionally, Badcock offers multiple and flexible payment solutions and credit options through its consumer and third-party financing services. The Badcock segment operates under the “Badcock Home Furniture & more” brand and is headquartered in Mulberry, Florida.

The American Freight segment is a retail chain offering in-store and online access to furniture, mattresses, new and out-of-box home appliances and home accessories at discount prices. American Freight buys direct from manufacturers and sells direct in warehouse-style stores. By cutting out the middleman and keeping its overhead costs low, American Freight can offer quality products at low prices. American Freight provides customers with multiple payment options providing access to high-quality products and brand name appliances that may otherwise remain aspirational to some of its customers.

American Freight also serves as a liquidation channel for major appliance vendors. American Freight operates specialty distribution centers that test every out-of-box appliance before it is offered for sale to customers. Customers typically are covered by the original manufacturer’s warranty and are offered the opportunity to purchase a full suite of extended-service plans and services. The American Freight segment operates under the “American Freight” brand and is headquartered in Delaware, Ohio.

The Buddy’s segment is a specialty retailer of high quality, name brand consumer electronic, residential furniture, appliances and household accessories through rent-to-own agreements. The rental transaction allows customers the opportunity to benefit from the use of high-quality products under flexible rental purchase agreements without long-term obligations. The Buddy’s segment operates under the “Buddy’s” brand and is headquartered in Orlando, Florida.

The Sylvan segment is an established and growing franchisor of supplemental education for Pre-K-12 students and families. Sylvan addresses the full range of student needs with a broad variety of academic curriculums delivered in an omnichannel format. The Sylvan platform provides franchisees with the ability to provide a range of services, including on premises, virtually, at a satellite location, and in the home. Sylvan is headquartered in Hunt Valley, Maryland.

Refer to “Note 6 – Revenue” for total revenues by segment. Operating income (loss) by segment were as follows:

	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Income (loss) from operations:
Vitamin Shoppe	$	28,651	$	31,017	$	55,846	$	66,371
Pet Supplies Plus	17,589		18,654		36,955		35,675
Badcock	2,859		30,903		17,602		101,134
American Freight	(21,890)		5,029		(108,519)		16,242
Buddy’s	2,894		3,561		6,633		7,626
Sylvan	1,823		1,633		2,974		2,581
Total Segments	31,926		90,797		11,491		229,629
Corporate	(9,426)		(13,691)		(15,520)		(22,157)
Consolidated income (loss) from operations	$	22,500	$	77,106	$	(4,029)	$	207,472

Total assets by segment were as follows:

(In thousands)	July 1, 2023		December 31, 2022
Total assets:
Vitamin Shoppe	$	620,559	$	625,543
Pet Supplies Plus	996,304		977,234
Badcock	730,969		789,727
American Freight	843,288		904,378
Buddy’s	133,091		135,192
Sylvan	87,282		90,361
Total Segments	3,411,493		3,522,435
Corporate	160,368		107,977
Consolidated total assets	$	3,571,861	$	3,630,412

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Subsequent Event Subsequent Events (Notes) - claims

2 Months Ended

6 Months Ended

Jul. 13, 2023

Jul. 01, 2023

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Subsequent Events

Redemption of Preferred Stock

On July 19, 2023, the Company issued a notice of redemption for all outstanding shares of its 7.50% Series A Cumulative Perpetual Preferred Stock (the “Preferred Stock”). The Company is redeeming the Preferred Stock in connection

with the Proposed Merger and in accordance with the terms and conditions of the Merger Agreement. The Redemption is contingent upon the Company’s successful completion of the Proposed Merger and, in the event the Proposed Merger does not occur and the Merger Agreement is terminated in accordance with its terms, the notice of redemption will be deemed rescinded and the Redemption will not occur.

The Preferred Stock will be redeemed in cash at a redemption price equal to $25.00 per share plus any accrued and unpaid dividends from the last dividend payment date, if any, up to but not including the Redemption Date (the “Redemption Price”). The Redemption Price is expected to be paid on August 18, 2023 or such later date as the parties to the Merger Agreement may agree, but in no event later than one business day following the Effective Time of the Proposed Merger (the “Redemption Date”). From and after the Redemption Date, dividends will cease to accrue on the Preferred Stock and the Preferred Stock will no longer be deemed outstanding and all rights of the holders of the Preferred Stock, other than the right to receive the Redemption Price upon Redemption, will cease and terminate. Upon Redemption, the Preferred Stock will be delisted from trading on the Nasdaq Global Market.

Litigation Related to the Proposed Merger

As disclosed in the definitive proxy statement filed by the Company with the SEC on July 14, 2023 (the “Definitive Proxy Statement”), between June 14, 2023 and July 13, 2023, the Company received from purported stockholders of the Company (i) five demand letters relating to the Proposed Merger and (ii) five demands pursuant to Section 220 of the General Corporation Law of the State of Delaware seeking certain books and records of the Company related to the Proposed Merger and related matters.

Following the filing of the Definitive Proxy Statement, one lawsuit relating to the Proposed Merger was filed: John Pels v. Franchise Group, Inc., et al., Case 23 CVH 07 0508 (Ohio C.P., July 20, 2023), (the “Action”) and the Company received from purported Company stockholders (i) two additional Section 220 books and records demands (cumulatively with the Section 220 books and records demands disclosed in the Definitive Proxy Statement, the “220 Demands”) and (ii) nine additional demand letters relating to the Proposed Merger (cumulatively with the demand letters disclosed in the Definitive Proxy Statement, the “Demand Letters” and together with the 220 Demands and the Actions, the “Matters”). The Matters allege, among other things, that the defendants named therein violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated thereunder because the preliminary proxy statement filed with the SEC in connection with the Proposed Merger or Definitive Proxy Statement allegedly omit or misstate certain material information, and/or were allegedly in breach of their obligations under state law and/or common law. The Action seeks, among other things, injunctive relief preventing the consummation of the Proposed Merger, rescission of the Proposed Merger if it is consummated, damages and attorneys’ fees.

The Company believes that the claims asserted in the Matters are without merit and that no supplemental disclosure is required under applicable law. However, in order to moot unmeritorious disclosure claims, to avoid the risk of the Matters delaying or adversely affecting the Proposed Merger and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, the Company determined to voluntarily supplement the Definitive Proxy Statement as described in the supplement to the Definitive Proxy Statement filed on August 8, 2023.

This Action is not expected to affect the timing of the Company’s special meeting of stockholders to be held for the purpose of voting upon, among other things, the Proposed Merger, which is scheduled to be held on August 17, 2023, or the amount of the consideration to be paid to the Company’s stockholders in connection with the Proposed Merger.

Loss Contingency, Pending Claims, Number

1

Loss Contingency, Number of Plaintiffs

5

Demand Letters, pending, number

9

Books and Records Demands, Claims, Number

2

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Receivables, Loans, Notes Receivable, and Others

6 Months Ended

Jul. 01, 2023

Receivables [Abstract]

Accounts and Notes Receivable

Accounts and Notes Receivable

Current and non-current receivables as of July 1, 2023 and December 31, 2022 are presented in the Condensed Consolidated Balance Sheets as follows:

(In thousands)	July 1, 2023		December 31, 2022
Trade accounts receivable	$	33,924	$	40,165
Customer accounts receivable	128,004		56,639
Franchisee accounts receivable	51,969		46,778
Notes and interest receivable	2,064		2,361
Income tax receivable	48,246		28,325
Allowance for credit losses	(8,204)		(4,106)
Current receivables, net	256,003		170,162
Notes receivable, non-current	11,878		12,627
Allowance for credit losses, non-current	(1,070)		(892)
Non-current receivables, net	10,808		11,735
Total receivables	$	266,811	$	181,897

Allowance for Credit Losses

The adequacy of the allowance for credit losses is assessed on a quarterly basis and adjusted as deemed necessary. Receivables that are ultimately deemed to be uncollectible, and for which collection efforts have been exhausted, are written off against the allowance for credit losses. Expected credit losses for trade and franchisee accounts receivable are immaterial. Notes receivable are due from the Company’s franchisees and are collateralized by the underlying franchise. The debtors’ ability to repay the notes is dependent upon both the performance of the franchisee’s industry as a whole and the individual franchise areas.

Activity in the allowance for credit losses for trade, customer, and franchisee accounts receivable and notes receivable for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	4,998	$	6,192
Cumulative effect of adopted accounting standards	654		—
Provision for credit loss expense (benefit)	3,683		10,224
Write-offs, net of recoveries	(61)		(109)
Balance at end of period	$	9,274	$	16,307

Past due amounts are primarily attributable to trade and franchisee accounts receivable that have been generated over the past year and are past due by 1-30 days. The delinquency distribution of accounts and notes receivable past due at July 1, 2023 were as follows:

	July 1, 2023
(In thousands)	Past due		Current		Total receivables
Accounts receivable	$	27,993	$	185,904	$	213,897
Notes and interest receivable	—		13,942		13,942
Total accounts, notes and interest receivable	$	27,993	$	199,846	$	227,839

Securitized Accounts Receivable

In order to monetize its customer credit receivables portfolio, the Company’s Badcock Home Furniture & more (“Badcock”) segment sells beneficial interests in customer revolving lines of credit pursuant to securitization transactions. The Company securitized an additional $133.4 million of its customer credit receivables portfolio during the six months ended July 1, 2023. For additional details regarding these securitizations, refer to “Note 5 – Securitized Accounts Receivable” in the Form 10-K.

When securitized receivables are delinquent for approximately one year, the estimated uncollectible amount from the customer is written off and the corresponding securitized accounts receivable is reduced. Financial instruments that could potentially subject the Company to concentrations of credit risk consist of accounts receivable with its customers. The Company manages such risk by managing the customer accounts receivable portfolio using delinquency as a key credit quality indicator. Management believes the allowance is adequate to cover the Company’s credit loss exposure. Due to their non-recourse nature, the Company will record a gain on extinguishment for any debt secured by uncollectible accounts receivable in the future when the debt meets the extinguishment requirements in accordance with ASC 470, “Debt”.

Activity in the allowance for credit losses on securitized accounts for the six months ended July 1, 2023 and June 25, 2022 was as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Balance at beginning of period	$	64,800	$	—
Cumulative effect of adopted accounting standards	13,187		—
Provision for credit loss expense	42,036		46,560
Write-offs, net of recoveries	(45,688)		(32,293)
Balance at end of period	$	74,335	$	14,267

Current amounts include receivables for customers who have made a payment in the past 30 days. Any customers who have not made a required payment within the last 30 days are considered past due. The following table presents the delinquency distribution of the carrying value of customer accounts receivable by year of origination as of July 1, 2023:

Delinquency Bucket	2023		2022		2021		Prior		Total
(in thousands)
Current	$	55,147	$	106,332	$	12,030	$	4,243	$	177,752
1-30	6,740		19,626		3,752		1,298		31,416
31-60	2,376		7,626		2,369		951		13,322
61-90	1,580		5,899		2,069		812		10,360
91+	2,314		43,742		18,929		7,303		72,288
Total	$	68,157	$	183,225	$	39,149	$	14,607	$	305,138

Servicing revenue, interest income and interest expense generated from securitized receivables for the six months ended July 1, 2023 and June 25, 2022 were as follows:

	Six Months Ended
(In thousands)	July 1, 2023		June 25, 2022
Securitization servicing revenue	$	6,291	$	4,972
Interest income from securitization1	56,986		114,156
Interest expense, debt secured by accounts receivable	(88,144)		(128,208)

1 Includes interest income from Badcock customer receivables (refer to “Note 3 – Accounts and Notes Receivable”) and securitized receivables.

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Pay vs Performance Disclosure - USD ($) $ in Thousands	6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022
Pay vs Performance Disclosure
Net loss	$ (159,113)	$ 53,301

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Insider Trading Arrangements	3 Months Ended
	Jul. 01, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false

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Organization and Significant Accounting Policies (Policies)

3 Months Ended

6 Months Ended

Jul. 01, 2023

Jul. 01, 2023

Accounting Policies [Abstract]

Basis of Presentation

Unless otherwise stated, references to the “Company,” “we,“ “us,” and “our” in this Quarterly Report on Form 10-Q (this “Quarterly Report”) refer to Franchise Group, Inc. and its direct and indirect subsidiaries on a consolidated basis. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2022 that was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2023 (the “Form 10-K”).

In the opinion of management, all adjustments (including those of a normal recurring nature) necessary for a fair presentation of such condensed consolidated financial statements in accordance with GAAP have been recorded. The December 31, 2022 balance sheet information was derived from the audited financial statements as of that date.

Reclassifications

Certain prior year amounts within the footnotes have been reclassified to conform to the current year presentation.

New Accounting Pronouncements, Policy

Recent Accounting Pronouncements Adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-13, “Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which changes how companies measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard replaces the “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables.

Effective January 1, 2023, the Company adopted ASU 2016-13 and applied a cumulative-effect adjustment to retained earnings. The Company has reviewed its entire portfolio of assets recognized on the balance sheet as of December 31, 2022 and identified customer receivables and securitized receivables as the materially impacted assets within the scope of ASC 326. Upon adoption of ASC 326 the Company recorded a net decrease to retained earnings of $10.0 million as of January 1, 2023. Prior period amounts were not adjusted and will continue to be reported under the previous accounting standards.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Balance Sheet as a result of the adoption of ASC 326 were as follows:

	Impact of Adoption of ASC 326
(In thousands)	Balance at December 31, 2022		Adjustments due to ASC 326		Balance at January 1, 2023
Assets
Current receivables, net	$	170,162	$	(654)	$	169,508
Current securitized receivables, net	292,913		(11,619)		281,294
Non-current securitized receivables, net	39,527		(1,568)		37,959
Deferred income taxes	38,528		3,863		42,391
Stockholders’ Equity
Retained earnings	$	109,917	$	(9,978)	$	99,939

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jul. 01, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

Changes in the carrying amount of goodwill for the six months ended July 1, 2023 are as follows:

	Vitamin Shoppe		Pet Supplies Plus		American Freight		Buddy’s		Sylvan		Total
Balance as of December 31, 2022	$	1,277	$	336,791	$	300,829	$	79,099	$	19,406	$	737,402
Acquisitions	—		3,690		—		—		—		3,690
Goodwill impairment	—		—		(75,000)		—		—		(75,000)
Disposals and purchase accounting adjustments	—		(2,611)		—		—		—		(2,611)
Balance as of July 1, 2023	$	1,277	$	337,870	$	225,829	$	79,099	$	19,406	$	663,481

Schedule of the amortizable other intangible assets

Components of intangible assets as of July 1, 2023 and December 31, 2022 were as follows:

	July 1, 2023
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(17,995)	$	78,010
Customer contracts	42,578		(10,752)		31,826
Other intangible assets	2,583		(987)		1,596
Total intangible assets	$	141,166	$	(29,734)	$	111,432

	December 31, 2022
(In thousands)	Gross carrying amount		Accumulated amortization		Net carrying amount
Indefinite lived tradenames	$	222,703	$	—	$	222,703
Intangible assets:
Franchise and dealer agreements	$	96,005	$	(14,348)	$	81,657
Customer contracts	42,484		(8,878)		33,606
Other intangible assets	2,313		(777)		1,536
Total intangible assets	$	140,802	$	(24,003)	$	116,799

XML

Long-Term Obligations (Tables)

6 Months Ended

Jul. 01, 2023

Debt Disclosure [Abstract]

Schedule of Debt

For details regarding the Company’s long-term debt obligations, refer to “Note 10 – Long-Term Obligations” in the Form 10-K.

Long-term obligations at July 1, 2023 and December 31, 2022 were as follows:

(In thousands)	July 1, 2023		December 31, 2022
Term loans, net of debt issuance costs
First lien term loan, due March 10, 2026	$	1,066,349	$	779,777
Second lien term loan, due September 10, 2026	290,566		289,435
Total term loans, net of debt issuance costs	1,356,915		1,069,212
ABL Revolver	146,500		295,000
Other long-term obligations	4,007		6,147
Finance lease liabilities	32,375		11,055
Total long-term obligations	1,539,797		1,381,414
Less current installments	13,192		6,935
Total long-term obligations, net	$	1,526,605	$	1,374,479

XML

Stockholders' Equity (Tables)

6 Months Ended

Jul. 01, 2023

Equity [Abstract]

Schedule of computation of basic and diluted net income (loss) per share

The following table sets forth the calculations of basic and diluted net income (loss) per share:

	Three Months Ended				Six Months Ended
(In thousands, except for share and per share amounts)	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income (loss) attributable to Franchise Group	$	(50,796)	$	40,983	$	(159,113)	$	53,301
Less: Preferred dividend declared	(2,129)		(2,129)		(4,257)		(4,257)
Adjusted net income (loss) available to Common Stockholders	$	(52,925)	$	38,854	$	(163,370)	$	49,044
Weighted-average common stock outstanding	35,177,146		40,356,299		35,089,660		40,331,855
Net dilutive effect of stock options and restricted stock	—		770,306		—		816,813
Weighted-average diluted shares outstanding	35,177,146		41,126,605		35,089,660		41,148,668
Net income (loss) per share:
Basic net income per share	$	(1.50)	$	0.96	$	(4.66)	$	1.22
Diluted net income per share	(1.50)		0.94		(4.66)		1.19

XML

Stock Compensation Plans (Tables)

3 Months Ended

Jul. 01, 2023

Share-Based Payment Arrangement [Abstract]

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity

The following table summarizes the status of the RSUs as of and changes during the six months ended July 1, 2023:

	Number of RSUs	Weighted average fair value at grant date
Balance as of December 31, 2022	273,302	$	36.39
Granted	284,818	27.89
Vested	(55,751)	29.18
Canceled	(130,919)	30.59
Balance as of July 1, 2023	371,450	$	33.00

XML

Organization and Significant Accounting Policies (Details) - USD ($) $ in Thousands	Jul. 01, 2023	Dec. 31, 2022
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net	$ 256,003	$ 170,162
Deferred Income Taxes and Tax Credits		38,528
Retained earnings	(85,620)	109,917
Cumulative Effect, Period of Adoption, Adjustment
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net		(654)
Deferred Income Taxes and Tax Credits		3,863
Retained earnings		(9,978)
Cumulative Effect, Period of Adoption, Adjusted Balance
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net		169,508
Deferred Income Taxes and Tax Credits		42,391
Retained earnings		99,939
Asset-backed Securities, Securitized Loans and Receivables
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net		292,913
Accounts Receivable, after Allowance for Credit Loss, Noncurrent	25,812	39,527
Asset-backed Securities, Securitized Loans and Receivables | Cumulative Effect, Period of Adoption, Adjustment
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net		(11,619)
Accounts Receivable, after Allowance for Credit Loss, Noncurrent		(1,568)
Asset-backed Securities, Securitized Loans and Receivables | Cumulative Effect, Period of Adoption, Adjusted Balance
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net		281,294
Accounts Receivable, after Allowance for Credit Loss, Noncurrent		37,959
Current receivables, net
Change in Accounting Estimate [Line Items]
Total Receivables, Current, Net	$ 256,003	$ 170,162

XML

Acquisitions (Details) - USD ($) $ / shares in Units, $ in Millions	Feb. 28, 2023	Jul. 19, 2023	Jul. 01, 2023	May 10, 2023	Dec. 31, 2022
Business Combinations [Abstract]
Business Combination, Price of Acquisition, Expected	$ 3.7
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Preferred Stock, Par or Stated Value Per Share			$ 0.01		$ 0.01
Proposed Merger Agreement | Freedom VCM, Inc.
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Common Stock, Par or Stated Value Per Share				$ 30.00
Business Combination, Step Acquisition, Equity Interest in Acquiree, Including Subsequent Acquisition, Percentage				64.00%
Proposed Merger Agreement | Series A Preferred Stock | Freedom VCM, Inc.
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Preferred Stock, Par or Stated Value Per Share		$ 25.00

XML

Accounts and Notes Receivable - Schedule of Receivables (Details) - USD ($) $ in Thousands	Jul. 01, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade accounts receivable	$ 213,897	$ 143,582
Income taxes receivable	48,246	28,325
Accounts Receivable, Allowance for Credit Loss, Current	(8,204)	(4,106)
Total Receivables, Current, Net	256,003	170,162
Accounts Receivable, Allowance for Credit Loss, Noncurrent	(1,070)	(892)
Receivables, Net, Non-current	10,808	11,735
Receivables	266,811	181,897
Receivables from franchisees
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade accounts receivable	51,969	46,778
Trade Accounts Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade accounts receivable	33,924	40,165
Receivables from customer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Trade accounts receivable	128,004	56,639
Other Noncurrent Assets
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes receivable, non-current	11,878	12,627
Other Current Assets
Accounts, Notes, Loans and Financing Receivable [Line Items]
Receivable with Imputed Interest, Face Amount	2,064	2,361
Notes Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts Receivable, Allowance for Credit Loss, Noncurrent	$ (1,070)	$ (892)

XML

Accounts and Notes Receivable - Additional Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022	Dec. 25, 2021
Financing Receivable, Allowance for Credit Loss [Line Items]
Trade accounts receivable	$ 213,897		$ 143,582
Receivables, Fair Value Disclosure	227,839
Accounts Receivable, Allowance for Credit Loss	8,204		4,106
Interest Income, Financing Receivable	56,986	$ 114,156
Securitization Revenue	6,291	4,972
Interest expense, financing receivable	(88,144)	(128,208)
Financial Asset, Past Due
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Noncurrent, 90 Days or More Past Due, Still Accruing	27,993
Other Current Assets | Current
Financing Receivable, Allowance for Credit Loss [Line Items]
Trade accounts receivable	199,846
Trade Accounts Receivable [Member]
Financing Receivable, Allowance for Credit Loss [Line Items]
Trade accounts receivable	33,924		40,165
Receivables, Fair Value Disclosure	213,897
Accounts Receivable, Allowance for Credit Loss	9,274	16,307	4,998	$ 6,192
Provision for Other Credit Losses	3,683	10,224
Accounts Receivable, Allowance for Credit Loss, Writeoff	(61)	$ (109)
Trade Accounts Receivable [Member] | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Allowance for Credit Loss			$ 654
Trade Accounts Receivable [Member] | Financial Asset, Past Due
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Noncurrent, 90 Days or More Past Due, Still Accruing	27,993
Trade Accounts Receivable [Member] | Current
Financing Receivable, Allowance for Credit Loss [Line Items]
Trade accounts receivable	185,904
Notes Receivable [Member]
Financing Receivable, Allowance for Credit Loss [Line Items]
Receivables, Fair Value Disclosure	13,942
Notes Receivable [Member] | Financial Asset, Past Due
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Noncurrent, 90 Days or More Past Due, Still Accruing	0
Notes Receivable [Member] | Current
Financing Receivable, Allowance for Credit Loss [Line Items]
Trade accounts receivable	$ 13,942

XML

Changes in the Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022
Finite-Lived Intangible Assets [Line Items]
Goodwill, Acquired in Acquisition			$ 3,690
Goodwill, Impairment Loss	$ 0	$ 0	75,000	$ 0
Goodwill, Impaired, Accumulated Impairment Loss					$ 70,000
ERROR in label resolution.	141,166		141,166		140,802
Finite-Lived Intangible Assets, Accumulated Amortization	(29,734)		(29,734)		(24,003)
Intangible Assets, Net (Excluding Goodwill)	111,432		111,432		116,799
Goodwill, Impairment Loss	0	$ 0	75,000	$ 0
Noncompete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
ERROR in label resolution.	96,005		96,005		96,005
Finite-Lived Intangible Assets, Accumulated Amortization					(14,348)
Intangible Assets, Net (Excluding Goodwill)					81,657
Customer Contracts [Member]
Finite-Lived Intangible Assets [Line Items]
ERROR in label resolution.	42,578		42,578		42,484
Finite-Lived Intangible Assets, Accumulated Amortization	(10,752)		(10,752)		(8,878)
Intangible Assets, Net (Excluding Goodwill)	$ 31,826		31,826		$ 33,606
Pet Supplies Plus
Finite-Lived Intangible Assets [Line Items]
Goodwill, Acquired in Acquisition			3,690
Goodwill, Impairment Loss			0
Goodwill, Impairment Loss			$ 0

XML

Components of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022
Amortizable other intangible assets:
Gross carrying amount	$ 141,166		$ 141,166		$ 140,802
Accumulated amortization	(29,734)		(29,734)		(24,003)
Net carrying amount	111,432		111,432		116,799
Goodwill	663,481		663,481		737,402
Goodwill, Acquired in Acquisition			3,690
Goodwill, Impairment Loss	0	$ 0	(75,000)	$ 0
Goodwill, Period Increase (Decrease)			(2,611)
American Freight [Member]
Amortizable other intangible assets:
Goodwill	225,829		225,829		300,829
Pet Supplies Plus
Amortizable other intangible assets:
Goodwill	337,870		337,870		336,791
Buddy's [Member]
Amortizable other intangible assets:
Goodwill	79,099		79,099		79,099
Sylvan Learning
Amortizable other intangible assets:
Goodwill	19,406		19,406		19,406
Trade Names [Member]
Amortizable other intangible assets:
Indefinite-Lived Trademarks	222,703		222,703		222,703
Franchise Agreements [Member]
Amortizable other intangible assets:
Accumulated amortization	(17,995)		(17,995)
Net carrying amount	78,010		78,010
Noncompete Agreements [Member]
Amortizable other intangible assets:
Gross carrying amount	96,005		96,005		96,005
Accumulated amortization					(14,348)
Net carrying amount					81,657
Reacquired rights
Amortizable other intangible assets:
Gross carrying amount	2,583		2,583		2,313
Accumulated amortization	(987)		(987)		(777)
Net carrying amount	1,596		1,596		1,536
Customer Contracts [Member]
Amortizable other intangible assets:
Gross carrying amount	42,578		42,578		42,484
Accumulated amortization	(10,752)		(10,752)		(8,878)
Net carrying amount	$ 31,826		31,826		$ 33,606
American Freight [Member]
Amortizable other intangible assets:
Goodwill, Acquired in Acquisition			0
Goodwill, Impairment Loss			(75,000)
Goodwill, Period Increase (Decrease)			0
Pet Supplies Plus
Amortizable other intangible assets:
Goodwill, Acquired in Acquisition			3,690
Goodwill, Impairment Loss			0
Goodwill, Period Increase (Decrease)			(2,611)
Buddy's [Member]
Amortizable other intangible assets:
Goodwill, Acquired in Acquisition			0
Goodwill, Impairment Loss			0
Goodwill, Period Increase (Decrease)			0
Buddy's [Member]
Amortizable other intangible assets:
Goodwill, Acquired in Acquisition			0
Goodwill, Impairment Loss			0
Goodwill, Period Increase (Decrease)			0
Sylvan Learning
Amortizable other intangible assets:
Goodwill, Acquired in Acquisition			0
Goodwill, Impairment Loss			0
Sylvan
Amortizable other intangible assets:
Goodwill, Period Increase (Decrease)			$ 0

XML

Revenue Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022
Revenues	$ 1,038,686	$ 1,094,998	$ 2,143,507	$ 2,230,467
Interest income	20,733	24,474	43,232	52,405
Revenues:
Lease Income	7,073	7,341	14,518	15,365
Deferred Revenue	60,076		60,076		$ 63,244
Deferred Revenue, Noncurrent	10,279		10,279		10,688
Trade accounts receivable	213,897		213,897		143,582
Financing Receivable, before Allowance for Credit Loss	13,739		13,739		14,988
Interest income from amortization of original purchase discount	6,032	24,671	14,269	62,277
Vitamin Shoppe [Member]
Revenues	304,727	306,897	626,429	617,851
Revenues:
Lease Income	0	0	0	0
American Freight [Member]
Revenues	203,427	226,428	439,989	467,843
Interest income	177	191	354	387
Revenues:
Lease Income	0	0	0	0
Pet Supplies Plus
Revenues	332,783	302,733	666,854	603,946
Interest income	78	67	161	139
Revenues:
Lease Income	0	0	0	0
Buddy's [Member]
Revenues	13,819	14,129	28,786	29,713
Interest income	0	0	0	0
Revenues:
Lease Income	7,073	7,341	14,518	15,365
Sylvan
Revenues	11,709	11,512	21,941	21,556
Revenues:
Lease Income	0	0	0	0
Badcock
Revenues	172,221	233,299	359,508	489,558
Interest income	20,478	24,216	42,717	51,879
Revenues:
Lease Income	0	0	0	0
Retail [Member]
Revenues	761,243	814,262	1,580,236	1,666,477
Retail [Member] | Vitamin Shoppe [Member]
Revenues	303,809	306,183	624,406	616,614
Retail [Member] | American Freight [Member]
Revenues	171,104	194,789	373,253	406,301
Retail [Member] | Pet Supplies Plus
Revenues	162,310	151,421	325,569	313,970
Retail [Member] | Buddy's [Member]
Revenues	565	661	1,289	1,731
Retail [Member] | Sylvan
Revenues	5	13	13	24
Retail [Member] | Badcock
Revenues	123,450	161,195	255,706	327,837
Wholesale
Revenues	154,869	137,747	312,684	264,696
Wholesale | Vitamin Shoppe [Member]
Revenues	611	314	1,393	488
Wholesale | American Freight [Member]
Revenues	3,965	3,237	9,016	6,780
Wholesale | Pet Supplies Plus
Revenues	150,293	134,196	302,275	257,428
Wholesale | Buddy's [Member]
Revenues	0	0	0	0
Wholesale | Sylvan
Revenues	0	0	0
Wholesale | Badcock
Revenues	0	0	0	0
Product [Member]
Revenues	916,112	952,009	1,892,920	1,931,173
Product [Member] | Vitamin Shoppe [Member]
Revenues	304,420	306,497	625,799	617,102
Product [Member] | American Freight [Member]
Revenues	175,069	198,026	382,269	413,081
Product [Member] | Pet Supplies Plus
Revenues	312,603	285,617	627,844	571,398
Product [Member] | Buddy's [Member]
Revenues	565	661	1,289	1,731
Product [Member] | Sylvan
Revenues	5	13	13	24
Product [Member] | Badcock
Revenues	123,450	161,195	255,706	327,837
Royalties and Advertising [Member]
Revenues	28,620	25,389	55,542	49,466
Royalties and Advertising [Member] | Vitamin Shoppe [Member]
Revenues	201	207	380	341
Royalties and Advertising [Member] | American Freight [Member]
Revenues	806	516	1,602	1,064
Royalties and Advertising [Member] | Pet Supplies Plus
Revenues	11,568	9,395	22,452	18,457
Royalties and Advertising [Member] | Buddy's [Member]
Revenues	4,657	4,603	9,840	9,427
Royalties and Advertising [Member] | Sylvan
Revenues	11,388	10,668	21,268	20,177
Royalties and Advertising [Member] | Badcock
Revenues	0	0	0	0
Financial Service [Member]
Revenues	12,170	10,860	22,595	19,034
Financial Service [Member] | Vitamin Shoppe [Member]
Revenues	0	0	0	0
Interest income	0	0	0	0
Financial Service [Member] | American Freight [Member]
Revenues	11,511	10,860	21,438	19,034
Financial Service [Member] | Pet Supplies Plus
Revenues	0	0	0	0
Financial Service [Member] | Buddy's [Member]
Revenues	0	0	0	0
Financial Service [Member] | Sylvan
Revenues	0	0	0	0
Financial Service [Member] | Badcock
Revenues	659	0	1,157	0
Membership [Member]
Revenues	21,918	25,203	46,374	51,831
Membership [Member] | Vitamin Shoppe [Member]
Revenues	0	0	0	0
Membership [Member] | American Freight [Member]
Revenues	8,667	10,677	19,255	22,156
Membership [Member] | Pet Supplies Plus
Revenues	0	0	0	0
Membership [Member] | Buddy's [Member]
Revenues	1,498	1,480	3,062	3,084
Membership [Member] | Sylvan
Revenues	0	0	0	0
Membership [Member] | Badcock
Revenues	11,753	13,046	24,057	26,591
Service, Other [Member]
Revenues	26,028	25,051	54,057	48,916
Service, Other [Member] | Vitamin Shoppe [Member]
Revenues	106	193	250	408
Service, Other [Member] | American Freight [Member]
Revenues	7,197	6,158	15,071	12,121
Service, Other [Member] | Pet Supplies Plus
Revenues	8,534	7,654	16,397	13,952
Service, Other [Member] | Buddy's [Member]
Revenues	26	44	77	106
Service, Other [Member] | Sylvan
Revenues	316	831	660	1,355
Service, Other [Member] | Badcock
Revenues	9,849	10,171	21,602	20,974
Service [Member]
Revenues	115,501	135,648	236,069	283,929
Service [Member] | Vitamin Shoppe [Member]
Revenues	307	400	630	749
Service [Member] | American Freight [Member]
Revenues	28,358	28,402	57,720	54,762
Service [Member] | Pet Supplies Plus
Revenues	20,180	17,116	39,010	32,548
Service [Member] | Buddy's [Member]
Revenues	6,181	6,127	12,979	12,617
Service [Member] | Sylvan
Revenues	11,704	11,499	21,928	21,532
Service [Member] | Badcock
Revenues	48,771	72,104	103,802	161,721
Gift Cards And Loyalty Programs
Revenues:
Contract with Customer, Liability	9,393	9,565	9,393	9,565
Franchise Fees
Revenues:
Contract with Customer, Liability	24,010		24,010		$ 22,175
customer deposit
Revenues:
Contract with Customer, Liability	$ 16,394	$ 20,816	$ 16,394	$ 20,816

XML

Revenue Revenue (Details 1) - USD ($) $ in Thousands	Jul. 01, 2023	Dec. 31, 2022
Revenue from Contract with Customer [Abstract]
Deferred Revenue	$ 60,076	$ 63,244

XML

Revenue Revenue (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022
Revenues	$ 1,038,686	$ 1,094,998	$ 2,143,507	$ 2,230,467
Lease Income	7,073	7,341	14,518	15,365
Interest income	20,733	24,474	43,232	52,405
Product [Member]
Revenues	916,112	952,009	1,892,920	1,931,173
Royalties and Advertising [Member]
Revenues	28,620	25,389	55,542	49,466
Financial Service [Member]
Revenues	12,170	10,860	22,595	19,034
Membership [Member]
Revenues	21,918	25,203	46,374	51,831
Service, Other [Member]
Revenues	26,028	25,051	54,057	48,916
Service [Member]
Revenues	115,501	135,648	236,069	283,929
Retail [Member]
Revenues	761,243	814,262	1,580,236	1,666,477
Wholesale
Revenues	154,869	137,747	312,684	264,696
Vitamin Shoppe [Member]
Revenues	304,727	306,897	626,429	617,851
Lease Income	0	0	0	0
Vitamin Shoppe [Member] | Product [Member]
Revenues	304,420	306,497	625,799	617,102
Vitamin Shoppe [Member] | Royalties and Advertising [Member]
Revenues	201	207	380	341
Vitamin Shoppe [Member] | Financial Service [Member]
Revenues	0	0	0	0
Interest income	0	0	0	0
Vitamin Shoppe [Member] | Membership [Member]
Revenues	0	0	0	0
Vitamin Shoppe [Member] | Service, Other [Member]
Revenues	106	193	250	408
Vitamin Shoppe [Member] | Service [Member]
Revenues	307	400	630	749
Vitamin Shoppe [Member] | Retail [Member]
Revenues	303,809	306,183	624,406	616,614
Vitamin Shoppe [Member] | Wholesale
Revenues	611	314	1,393	488
American Freight [Member]
Revenues	203,427	226,428	439,989	467,843
Lease Income	0	0	0	0
Interest income	177	191	354	387
American Freight [Member] | Product [Member]
Revenues	175,069	198,026	382,269	413,081
American Freight [Member] | Royalties and Advertising [Member]
Revenues	806	516	1,602	1,064
American Freight [Member] | Financial Service [Member]
Revenues	11,511	10,860	21,438	19,034
American Freight [Member] | Membership [Member]
Revenues	8,667	10,677	19,255	22,156
American Freight [Member] | Service, Other [Member]
Revenues	7,197	6,158	15,071	12,121
American Freight [Member] | Service [Member]
Revenues	28,358	28,402	57,720	54,762
American Freight [Member] | Retail [Member]
Revenues	171,104	194,789	373,253	406,301
American Freight [Member] | Wholesale
Revenues	3,965	3,237	9,016	6,780
Buddy's [Member]
Revenues	13,819	14,129	28,786	29,713
Lease Income	7,073	7,341	14,518	15,365
Interest income	0	0	0	0
Buddy's [Member] | Product [Member]
Revenues	565	661	1,289	1,731
Buddy's [Member] | Royalties and Advertising [Member]
Revenues	4,657	4,603	9,840	9,427
Buddy's [Member] | Financial Service [Member]
Revenues	0	0	0	0
Buddy's [Member] | Membership [Member]
Revenues	1,498	1,480	3,062	3,084
Buddy's [Member] | Service, Other [Member]
Revenues	26	44	77	106
Buddy's [Member] | Service [Member]
Revenues	6,181	6,127	12,979	12,617
Buddy's [Member] | Retail [Member]
Revenues	565	661	1,289	1,731
Buddy's [Member] | Wholesale
Revenues	0	0	0	0
Pet Supplies Plus
Revenues	332,783	302,733	666,854	603,946
Lease Income	0	0	0	0
Interest income	78	67	161	139
Pet Supplies Plus | Product [Member]
Revenues	312,603	285,617	627,844	571,398
Pet Supplies Plus | Royalties and Advertising [Member]
Revenues	11,568	9,395	22,452	18,457
Pet Supplies Plus | Financial Service [Member]
Revenues	0	0	0	0
Pet Supplies Plus | Membership [Member]
Revenues	0	0	0	0
Pet Supplies Plus | Service, Other [Member]
Revenues	8,534	7,654	16,397	13,952
Pet Supplies Plus | Service [Member]
Revenues	20,180	17,116	39,010	32,548
Pet Supplies Plus | Retail [Member]
Revenues	162,310	151,421	325,569	313,970
Pet Supplies Plus | Wholesale
Revenues	$ 150,293	$ 134,196	$ 302,275	$ 257,428

XML

Long-Term Obligations (Details) - USD ($) $ in Thousands	Jul. 01, 2023	Feb. 02, 2023	Dec. 31, 2022
Credit facility
Other Long-term Debt	$ 4,007		$ 6,147
Long-term Debt and Lease Obligation, Including Current Maturities	1,539,797		1,381,414
Current Installments of Long-Term Obligation	13,192		6,935
Long-term Debt, Excluding Current Maturities	1,526,605		1,374,479
Term loan
Credit facility
Total debt	1,356,915		1,069,212
Revolver
Credit facility
Total debt	146,500		295,000
Finance Lease Liability [Member]
Credit facility
Total debt	32,375		11,055
Line of Credit [Member]
Credit facility
Maximum borrowing capacity		$ 300,000
Senior Secured Notes, First Lien Credit Agreement | Term loan
Credit facility
Debt Instrument, Face Amount	1,066,349		779,777
Senior Lien | Term loan
Credit facility
Debt Instrument, Face Amount	$ 290,566		$ 289,435

XML

Income Taxes (Details) - USD ($)		3 Months Ended
	Jul. 10, 2019	Jul. 01, 2023	Jun. 25, 2022
Income Tax Disclosure [Abstract]
Tax Receivable Agreement, Payment to Non-controlling Holders	40.00%
Effective Income Tax Rate Reconciliation at Federal Statutory Income Tax Rate, Amount		$ 0.214	$ 0.249
Tax Receivable Agreement [Member]
Income Tax Contingency [Line Items]
Deferred Tax Liabilities, Deferred Expense		15,400,000
Tax Receivable Agreement [Member] | Other Current Liabilities
Income Tax Contingency [Line Items]
Deferred Tax Liabilities, Deferred Expense		$ 1,000,000.0

XML

Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022
Stockholders' Equity
Net loss			$ (159,113)	$ 53,301
Dividends, Preferred Stock	$ (2,129)	$ (2,129)	(4,257)	(4,257)
Net Income (Loss) Available to Common Stockholders, Basic	$ (52,925)	$ 38,854	$ (163,370)	$ 49,044
Weighted Average Number of Shares Outstanding, Basic	35,177,146	40,356,299	35,089,660	40,331,855
Weighted Average Number of Shares Outstanding, Diluted	35,177,146	41,126,605	35,089,660	41,148,668
Incremental Common Shares Attributable to Dilutive Effect of Options and Restricted Stock Units	0	770,306	0	816,813
Earnings Per Share, Basic	$ (1.50)	$ 0.96	$ (4.66)	$ 1.22
Earnings Per Share, Diluted	$ (1.50)	$ 0.94	$ (4.66)	$ 1.19
Common Class A [Member]
Stockholders' Equity
Net loss	$ (50,796)	$ 40,983	$ (159,113)	$ 53,301
Weighted Average Number of Shares Outstanding, Basic	35,177,146	40,356,299	35,089,660	40,331,855
Earnings Per Share, Basic	$ (1.50)	$ 0.96	$ (4.66)	$ 1.22

XML

Stock Compensation Plans (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023
Nonvested stock option activity, Weighted average exercise price
Employee Benefits and Share-Based Compensation		$ 10.9	$ 2.8
Restricted Stock Units
Nonvested stock option activity, Nonvested options
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Beginning Balance			273,302
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted			284,818
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period			(55,751)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations			(130,919)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	371,450		371,450
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value			$ 36.39
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value			27.89
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value			29.18
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value			30.59
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	$ 33.00		$ 33.00
Performance Shares
Nonvested stock option activity, Nonvested options
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Beginning Balance			364,857
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted			217,088
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period			(282,256)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations			(86,475)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	368,118		368,118
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value			$ 32.92
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value			33.79
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value			24.82
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value			46.50
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	$ 33.05		$ 33.05
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Other			154,904
Adjusted for performance results achieved			$ 24.84
Performance Shares | MegaGrant
Nonvested stock option activity, Nonvested options
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number, Beginning Balance			840,926
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations	(125,500)
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	715,426		715,426
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value			$ 21.77
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	0
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value	30.96
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	$ 20.16		$ 20.16
Share-based Payment Arrangement, Option [Member]
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	206,376		206,376
Weighted average exercise price (in dollars per share)	$ 9.32		$ 9.32
Share-based Payment Arrangement, Option [Member] | Exercise Price, Range One [Member]
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	175,000		175,000
Weighted average exercise price (in dollars per share)	$ 8.85		$ 8.85
Share-based Payment Arrangement, Option, Exercise Price Range, Exercisable, Weighted Average Remaining Contractual Term			6 months
Share-based Payment Arrangement, Option [Member] | Exercise Price, Range Two [Member]
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	17,487		17,487
Weighted average exercise price (in dollars per share)	$ 11.93		$ 11.93
Share-based Payment Arrangement, Option, Exercise Price Range, Outstanding, Weighted Average Remaining Contractual Term			1 year 2 months 12 days
Share-based Payment Arrangement, Option [Member] | Exercise Price, Range Three
Nonvested stock option activity, Weighted average exercise price
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	13,889		13,889
Weighted average exercise price (in dollars per share)	$ 12.01		$ 12.01
Share-based Payment Arrangement, Option, Exercise Price Range, Outstanding, Weighted Average Remaining Contractual Term			6 months

XML

Stock Compensation Plans (Details 2) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended
	Jul. 01, 2023 USD ($) $ / shares shares	Jul. 01, 2023 USD ($) $ / shares shares
stock awards expense [Member] | Accounts Payable and Accrued Liabilities
Stock options outstanding and exercisable
Share-based Payment Arrangement, Expense | $	$ 4.4
Share-based Payment Arrangement, Option [Member]
Stock options outstanding and exercisable
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	206,376	206,376
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		(48,188)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ / shares	$ 9.32	$ 9.32
Outstanding at the beginning of the period (in shares)	0	0
Share-based Payment Arrangement, Option [Member] | Exercise Price, Range One [Member]
Stock options outstanding and exercisable
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	175,000	175,000
Share-based Payment Arrangement, Option [Member] | Exercise Price, Range two
Stock options outstanding and exercisable
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	17,487	17,487
Restricted Stock Units
Stock options outstanding and exercisable
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $	$ 6.8	$ 6.8
Restricted Stock Units | Accounts Payable and Accrued Liabilities
Stock options outstanding and exercisable
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $	12.7	12.7
Performance Shares
Stock options outstanding and exercisable
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $	0.1	0.1
MegaGrant
Stock options outstanding and exercisable
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount | $	$ 5.3	$ 5.3
Stock Option Plan
Stock options outstanding and exercisable
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	206,376	206,376
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0

XML

Restricted Stock Units (Details 3) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended
	Jul. 01, 2023	Jul. 01, 2023	Dec. 31, 2022
Restricted Stock Units
Restricted Cash and Cash Equivalents Items [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted		284,818
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	371,450	371,450	273,302
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value		$ 27.89
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period		55,751
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value		$ 29.18
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations		130,919
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value		$ 30.59
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	$ 33.00	$ 33.00	$ 36.39
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount	$ 6.8	$ 6.8
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value		$ 27.89
Performance Shares
Restricted Cash and Cash Equivalents Items [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted		217,088
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	368,118	368,118	364,857
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value		$ 33.79
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period		282,256
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value		$ 24.82
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations		86,475
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value		$ 46.50
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	$ 33.05	$ 33.05	$ 32.92
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount	$ 0.1	$ 0.1
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value		$ 33.79
Performance Shares | MegaGrant
Restricted Cash and Cash Equivalents Items [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted	0
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	715,426	715,426	840,926
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations	125,500
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations, Weighted Average Grant Date Fair Value	$ 30.96
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Weighted Average Grant Date Fair Value	20.16	$ 20.16	$ 21.77
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Granted, Weighted Average Grant Date Fair Value	$ 0

XML

Related Party Transactions (Details)	Jul. 01, 2023
Vintage RTO, L.P. ownership [Member]
Related Party Transaction [Line Items]
aggregate voting power	34.80%

XML

Commitments and Contingencies (Details) - USD ($) $ in Millions	Jul. 01, 2023	Jun. 25, 2022
Commitments and Contingencies Disclosure [Abstract]
Net Amount at Risk by Product and Guarantee, Net Amount at Risk	$ 34.4	$ 30.2

XML

Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022
Segment Reporting Information [Line Items]
Operating Income (Loss)	$ 22,500	$ 77,106	$ (4,029)	$ 207,472
Goodwill	663,481		663,481		$ 737,402
Assets	3,571,861		3,571,861		3,630,412
Revenues	1,038,686	1,094,998	2,143,507	2,230,467
Vitamin Shoppe [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	28,651	31,017	55,846	66,371
Goodwill	1,277		1,277		1,277
Assets	620,559		620,559		625,543
Revenues	304,727	306,897	626,429	617,851
American Freight [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	(21,890)	5,029	(108,519)	16,242
Goodwill	225,829		225,829		300,829
Assets	843,288		843,288		904,378
Revenues	203,427	226,428	439,989	467,843
Pet Supplies Plus
Segment Reporting Information [Line Items]
Operating Income (Loss)	17,589	18,654	36,955	35,675
Goodwill	337,870		337,870		336,791
Assets	996,304		996,304		977,234
Revenues	332,783	302,733	666,854	603,946
Buddy's [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	2,894	3,561	6,633	7,626
Goodwill	79,099		79,099		79,099
Assets	133,091		133,091		135,192
Revenues	13,819	14,129	28,786	29,713
Overhead [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	(9,426)	(13,691)	(15,520)	(22,157)
Badcock
Segment Reporting Information [Line Items]
Operating Income (Loss)	2,859	30,903	17,602	101,134
Assets	730,969		730,969		789,727
Revenues	172,221	233,299	359,508	489,558
Sylvan Learning
Segment Reporting Information [Line Items]
Operating Income (Loss)	1,823	1,633	2,974	2,581
Goodwill	19,406		19,406		19,406
Assets	87,282		87,282		90,361
Operating Segments [Member]
Segment Reporting Information [Line Items]
Operating Income (Loss)	31,926	$ 90,797	11,491	$ 229,629
Assets	3,411,493		3,411,493		3,522,435
Corporate, Non-Segment [Member]
Segment Reporting Information [Line Items]
Assets	$ 160,368		$ 160,368		$ 107,977

XML

Receivables, Loans, Notes Receivable, and Others (Details) - Asset Pledged as Collateral with Right	6 Months Ended
	Jul. 01, 2023
Receivables [Abstract]
Other Significant Noncash Transaction, Consideration Received	133.4
Financing Receivable, Allowance for Credit Loss [Line Items]
Other Significant Noncash Transaction, Consideration Received	133.4

XML

Receivables, Loans, Notes Receivable, and Others - Schedule of Accounts Receivable By Origination (Details) $ in Thousands	Jul. 01, 2023 USD ($)
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	$ 68,157
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	183,225
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	39,149
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	14,607
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	305,138
Current
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	55,147
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	106,332
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	12,030
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	4,243
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	177,752
1 - 30
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	6,740
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	19,626
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	3,752
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	1,298
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	31,416
31-60
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	2,376
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	7,626
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	2,369
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	951
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	13,322
61-90
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	1,580
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	5,899
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	2,069
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	812
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	10,360
91+
Financing Receivable, Credit Quality Indicator [Line Items]
Financing Receivable, Excluding Accrued Interest, Year One, Originated, Current Fiscal Year	2,314
Financing Receivable, Excluding Accrued Interest, Year Two, Originated, Fiscal Year before Current Fiscal Year	43,742
Financing Receivable, Excluding Accrued Interest, Year Three, Originated, Two Years before Current Fiscal Year	18,929
Financing Receivable, Excluding Accrued Interest, Year Five, Originated, Four Years before Current Fiscal Year	7,303
Financing Receivable, Excluding Accrued Interest, before Allowance for Credit Loss	$ 72,288

XML

Receivables, Loans, Notes Receivable, and Others - Activity for Credit Losses (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 01, 2023	Jun. 25, 2022	Dec. 31, 2022	Dec. 25, 2021
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Allowance for Credit Loss	$ 8,204		$ 4,106
Securitized accounts receivable
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Allowance for Credit Loss	74,335	$ 14,267	64,800	$ 0
Provision for Other Credit Losses	42,036	46,560
Accounts Receivable, Allowance for Credit Loss, Writeoff	$ (45,688)	$ (32,293)
Securitized accounts receivable | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Allowance for Credit Loss [Line Items]
Accounts Receivable, Allowance for Credit Loss			$ 13,187

XML

Label	Element	Value
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	$ 81,250,000
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	us-gaap_CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents	$ 292,714,000