Short answer: Item 19 is the optional financial performance representation section of an FDD. Read every definition and note: which outlets were included, the period measured, whether results are averages or medians, what the sales figure excludes, and how many outlets achieved the reported result.
What does an Item 19 number actually measure?
A figure labeled Net Sales generally describes restaurant sales under the franchisor's stated definition. It does not automatically show food cost, labor, occupancy, royalties, marketing, debt service, taxes, owner compensation, or profit.
The reporting population matters. Mature outlets may perform differently from new outlets, and a subset may not represent every franchised restaurant. Compare the included population, exclusions, and number of reporting outlets.
- Definition of Net Sales or gross sales
- Reporting period and outlet age
- Average, median, high, low, or percentage distribution
- Number and type of outlets included and excluded
How should candidates build a forecast?
Use Item 19 as one historical input. Build an independent forecast for the proposed market and site using realistic transactions, average check, sales channels, seasonality, and ramp-up. Then model all operating expenses and capital obligations.
Test multiple scenarios rather than a single expected outcome. A lender or accountant may require assumptions that are more conservative than system averages.
- Base, downside, and upside sales cases
- Food, labor, occupancy, and delivery costs
- Royalty, marketing, technology, insurance, and professional fees
- Debt service, taxes, working capital, and owner compensation
Which questions should you ask?
Ask why the franchisor chose the reported format and how the data was collected. Ask whether additional substantiation is available and speak with franchisees about the difference between sales and cash flow in their own operations.
Never accept an earnings statement that conflicts with the FDD. Qualified legal and accounting advisers can help compare the representation with the business plan.
- How many outlets met or exceeded the average?
- Were company-owned restaurants reported separately?
- What changed from the prior FDD?
- How comparable is the proposed restaurant format?
How this connects to Russo's
Russo's current Item 19 language is presented with the required distinction between historical Net Sales and profit. Candidates should review the current FDD for the full outlet population, definitions, notes, and substantiation.
Use these Russo's resources to continue your research:
Sources and decision guidance
This article is educational. Franchise terms come only from the current disclosure documents and signed agreements. Candidates should use qualified legal, accounting, financing, real-estate, and business advisers where appropriate.
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