The Progressive Accountant - Tax
Economy Took Toll On Liberty Tax Franchise Sales
Written by Bob Scott   

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Virginia Beach, Va. – With the economy taking a toll on franchise sales, JTH Tax, which operates the Liberty Tax Service, saw a 28.4 percent decline in earnings on a 6.4 decrease in revenue for the year ended April 30.

Liberty Tax logoFranchise fee revenue comes from the sale of franchisee territories and last year was a bad one for selling franchises, said Martha O’Gorman, the company’s chief marketing officer. “No one could borrow any money,” she explained. But she continued that “The good news is that we are seeing a significant recovery this year and our franchise sales are sky rocketing.  You should see that number return to normal or increase for FY 2010.”

That drop helped push net income to $12.1 million, down from earnings of $16.9 percent for fiscal 2008. Revenue of $82.4 million was off from  $87.6 million the prior year. Franchise fees fell to $10.3 million, down 52 percent from $21.4 million for fiscal 2008. That was somewhat offset by $31.6 million in royalties and advertising revenue for the most recently ended year, up 20 percent from $26.3 million a year earlier.

On the expense side, Liberty has been ramping up its advertising spending. This year’s $12.1 million was 19.3 percent higher than the amount spent in 2008 and just under 40 percent higher than advertising expense for fiscal 2007. O’Gorman said advertising increased with the growth in the number of offices, with franchisees paying 5 percent of their revenue towards advertising.

Earlier this year, the company announced it had a 15-percent increase in tax returns prepared and a 22 percent increase in revenue during the 2009 tax season. However, fees from tax returns prepared at company-owned stores dropped to $4.57 million from $4.48 million year to year. The company said it added 400 offices during the tax season.

Bob Scott
About the author:
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  
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