The 2026 FDD Update: What CY2025 Data Reveals About Primrose’s Growth-Without-Gains Problem

Here’s what the 2026 Primrose FDD reports for calendar year 2025:

System-level

• 558 franchised schools open at year-end 2025 (up from 525 in CY2024 — 6.3% unit growth)
• System AUV: $2,659,000 (down from $2,728,570 in CY2024 — a 2.5% decline)
• System net profit margin: ~3.8%, constrained by labor cost inflation in licensed childcare

Top quartile (130 of 520 active reporting franchises)

• Average gross revenue: $3,586,393 (down from $3,812,543 in CY2024 — a 5.9% decline)
• Only 37.7% of top-quartile schools exceeded this average — meaning the majority of even the best-performing group fell below the subset’s own mean

Top quartile EBITDA (89 of 357 rent-reporting schools)

• Average EBITDA: $768,966
• Only 44% of top-quartile schools exceeded this EBITDA average

The system got bigger. Revenue per unit did not follow. The top end — where the economic model looks most compelling — got worse.

This is the metric that should dominate your diligence conversations: fewer and fewer schools clear the averages that the system reports.

When only 37.7% of the top quartile exceeds the top-quartile average, you’re looking at a distribution that’s being pulled upward by a small number of outliers. The same pattern repeats in EBITDA — only 44% of the top-quartile EBITDA group exceeds the reported average of $768,966.

What Concentration Means in Practice

• The “average” is increasingly aspirational. It describes a small subset of the top of the top, not the typical experience of even high-performing operators.
• Median performance is likely materially lower than the averages being cited. Without median disclosure (which Primrose does not provide in Item 19), you’re relying on a mean that the majority of operators never reach.
• Profitability gains are accruing to incumbents in established markets — operators with mature enrollment, favorable lease terms negotiated years ago, and staffing pipelines that newer entrants cannot replicate.

This is the pattern described in the broader childcare franchise staffing analysis: mandated ratios lock your labor structure, wage inflation compresses whatever margin remains, and only operators who locked in costs early maintain real profitability.

If you’re evaluating a new-unit development deal, your relevant benchmark is not the top-quartile average. It’s the bottom of the top quartile — and even that number likely overstates what a new school in a competitive metro will generate in its first three to five years of operation.

Three dynamics explain the divergence:

1. Staffing Inflation Hit the P&L

Childcare is a labor-intensive, ratio-regulated business. In CY2024, average payroll across the Primrose system was $1,260,772, representing roughly 45% of revenue. CY2025 data suggests this ratio held or increased, which — on flat or declining revenue — means margin compression.

The Bureau of Labor Statistics reports that median wages for childcare workers rose 4.2% nationally between 2024 and 2025. In states with recent minimum wage increases — including several of Primrose’s core markets in Texas, Georgia, and Florida — the pressure was more acute.

When your revenue is flat and your largest cost category grows, the result is arithmetic: net margin shrinks. The system’s ~3.8% net profit margin reflects a business generating roughly $101K in net income on $2.66M in revenue. That’s real money — but it offers almost no buffer against cost surprises, enrollment dips, or rate competition.

2. Unit Growth Diluted System Averages

Primrose added 33 net new schools between CY2024 and CY2025 — a healthy 6.3% growth rate. But new units ramp slowly in childcare. The pre-opening and enrollment ramp timeline typically runs 18 to 30 months to stabilize.

Those 33 new schools are generating revenue at a fraction of system average during their ramp period, pulling AUV downward even if mature schools held steady. This is a normal effect — but it means the headline AUV decline overstates mature-unit revenue decline while simultaneously obscuring that mature units may also be stagnating.

3. Market Saturation in Mature Metros

Primrose’s growth strategy has historically concentrated in the Sun Belt — Texas, Georgia, North Carolina, Florida. These markets are also where KinderCare, Goddard School, and Kiddie Academy have expanded aggressively.

More units chasing the same enrollment base in the same metros produces predictable results: slower ramp times, higher marketing spend to fill classrooms, and enrollment plateaus below capacity. The top-quartile revenue decline from $3.81M to $3.59M is consistent with this dynamic hitting even established operators.

If you’re applying for an SBA 7(a) or 504 loan to finance a Primrose development, understand that your lender’s credit team will pull the 2026 FDD — not the 2025 version. They will underwrite against CY2025 data.

The DSCR Math Has Changed

Debt service coverage ratio is the number that determines whether you get funded and at what terms. Here’s how it moves:

• CY2024 data: Using AUV of $2,729K and typical Primrose expense ratios, a new-unit SBA loan at $3.5M produced a projected DSCR around 1.25x–1.35x. Tight but approvable.
• CY2025 data: AUV of $2,659K — a $70K annual revenue reduction — drops that DSCR by roughly 0.06x–0.08x. If your model was already at the floor, you may now be below the SBA’s minimum DSCR threshold without additional equity injection or a co-borrower.

What Lenders Will Flag

1. AUV decline despite system growth. Lenders interpret this as demand softening, not as a ramp-period artifact. You’ll need to explain the composition of the decline.
2. Top-quartile revenue drop. Credit analysts use top-quartile performance as the “success case” in their sensitivity analysis. A 5.9% decline in the ceiling scenario tightens the entire model.
3. Concentration of profitability. When fewer than half of even the best performers exceed the reported average, lenders discount the average further. Expect underwriting at the 40th–50th percentile, not the mean.

Resources like Lendesca can help you model your loan scenarios against the current CY2025 data rather than the CY2024 figures that most online calculators still reference.

The CY2025 data doesn’t invalidate CY2024. It adds a second point to a trend line — and trend lines are more useful than snapshots.

The Two-Year View

How to Model Responsibly

1. Use third-quartile CY2025 revenue as your base case. If the system average is $2,659K and 55%+ of operators fall below it, model at $2.3M–$2.4M. This is your “realistic” scenario. Build your P&L, cash flow projection, and debt service schedule from here.
2. Use top-quartile CY2025 as your upside — not your expectation. $3.59M is achievable but only 130 of 520 reporting schools reached this band, and most of those are mature units with 5+ years of operating history.
3. Run a downside case at $2.0M. This is where the bottom of the third quartile lives. If your business plan doesn’t survive at $2.0M revenue, you’re making a bet on performance that statistically, roughly 25% of the system fails to achieve.
4. Adjust payroll assumptions to 47%–48% of revenue. CY2024’s 45% may no longer hold given wage inflation. A 2–3 point payroll increase on $2.66M revenue is $53K–$80K — enough to cut net income by half at a 3.8% margin.
5. Model both years as a trajectory, not as a choice. If AUV dropped 2.5% from CY2024 to CY2025, stress-test what CY2026 looks like if the trend continues. Flat is optimistic. Another 2% decline gives you AUV of ~$2,605K. Can your pro forma absorb that?

Primrose Schools remains one of the strongest childcare franchise systems in the United States. The brand is premium, the curriculum is differentiated, and the waitlist model in established markets creates real demand moats. None of that is in dispute.

What the CY2025 data reveals is that the system’s growth phase is producing diminishing per-unit returns. Revenue is flat. The top end is contracting. Profitability is concentrating among a shrinking percentage of operators. And the cost structure — locked by state-mandated ratios and rising wages — leaves almost no room for margin recovery without tuition increases that the market may not absorb.

If you’re signing a franchise agreement in 2026, you’re committing to a 12-year term based on a financial model that just got less favorable. That doesn’t mean it’s a bad investment. It means you need to underwrite it with current data, build your P&L at conservative revenue assumptions, and pressure-test your sensitivity analysis against the trend — not the peak.

The fee load analysis and the October SBA rule changes are essential companion reads to this data. Together, they give you the full picture of what Primrose costs, what it earns, and what it’s worth when you’re ready to sell.

Make the decision on the numbers that exist today — not the ones that existed last year.