Brill 2025: ALDO Improved the Margin, but Leases and Interest Still Press the Story

Company Introduction

At first glance, Brill looks like another multi-brand fashion retailer. That is too shallow a reading. The real economics of Brill sit in the combination of retail, wholesale and franchise activity, but the risk does not really move to the franchisee. Inventory remains on the group's books, pricing and promotions are set centrally, and sales still flow through the group's tills. So even when the model appears lighter because of franchisees, working-capital risk, markdown risk and inventory mistakes still sit with Brill.

That is the core of the 2025 story. On one side, there is real operating improvement: revenue fell only 1.7% to NIS 569.5 million, but gross profit rose to NIS 310.0 million and gross margin improved to 54.4%, from 51.5% in 2024. EBITDA, operating profit before depreciation and amortization, rose to NIS 103.0 million. On the other side, this is still not a clean year: same-store sales fell 2.7%, net finance expense jumped to NIS 32.2 million, and the company returned to a net loss of NIS 7.7 million.

What is working now? The sales mix shifted toward higher-margin retail, mainly after the ALDO acquisition. The footwear segment and the S.B.N segment also remained profitable. What is still unresolved? Equity freedom. Lease obligations, interest expense and the need to fund inventory and directly operated stores consume a large part of the operating improvement before it reaches shareholders.

This is also the early practical screen. The stock is illiquid and thinly traded, with only about NIS 20 thousand of turnover on the latest available trading day. The available short-interest data is almost meaningless, short float is effectively zero, so this is not a technical short story. It is a business question: can Brill turn a better gross margin into cleaner profit, cash flow and balance-sheet flexibility.

Brill's Economic Map

The right way to read Brill in 2025 is through its profit pools and friction points:

Operationally, the group ended 2025 with 223 stores, up from 214 a year earlier. Most of the increase came from ALDO. At the same time, direct employees rose to 290 from 174, mainly because store staff jumped to 175 from 64. That number explains what happened here: Brill did not just buy another brand, it took on a heavier layer of direct operation.

Events And Triggers

ALDO improved the mix, but also made the structure heavier

The first trigger: in January 2025 Brill completed the ALDO activity acquisition. It received 22 stores, inventory and a website for NIS 8.1 million. The purchase price was allocated to NIS 3.1 million of inventory and NIS 6.8 million of property, plant and equipment, while the excess fair value was recognized as a bargain purchase gain of NIS 1.8 million.

This is an acquisition that looks good on first read, and for good reason. It pushed Super Brands revenue from NIS 46.4 million to NIS 74.8 million and lifted segment gross profit to NIS 46.1 million from NIS 24.2 million. But it also changed the cost structure. Most ALDO stores were still directly operated at the reporting date, right-of-use assets rose to NIS 236.6 million from NIS 208.0 million, and non-current lease liabilities rose to NIS 192.1 million from NIS 169.7 million. In plain language, ALDO improved the margin, but it also pulled Brill into a heavier structure of rent, payroll and depreciation.

The police tender is an option, not a number you can underwrite yet

The second trigger: in November 2025 Brill won a police tender that added the group's chains to the list of retailers where employees of the police, prison service and fire authority can purchase through points and discounts. The arrangement runs for 24 months, with an option to extend until January 1, 2036. According to the tender documents, total purchases across all participating networks were NIS 537 million in 2022, NIS 635 million in 2023 and NIS 754 million in 2024.

Those numbers are tempting, but they should not be stretched into a stronger claim than the filing allows. Brill itself says it cannot estimate its actual future share of the tender volume. So this is a real trigger that may help near-term commercial momentum, but not something that can already serve as a core pillar of the thesis.

License extensions lengthen the runway

The third trigger: during 2025 Brill and its subsidiary S.B.N extended and renewed several important brand licenses. Timberland was extended to the end of 2028, Lee Cooper was extended for another five years from 2026 with expansion into underwear and swimwear, and Champion was added as an exclusive license through the end of 2031 with extension options. That matters because Brill depends on brand rights, and those extensions reduce contract risk.

But there is a second side here too. A longer license is not the same thing as profit. For those renewals to create real value, investors still need to see sales, profitability and cash. For now, the Fashion segment where Lee Cooper sits ended 2025 with a loss of NIS 4.5 million.

Lee Cooper also exposed the friction that can come with category expansion

The fourth trigger: at the end of November 2025 the company received a NIS 2.7 million lawsuit claiming it sold Lee Cooper underwear without permission from the plaintiff. At the end of December the sides settled, with Brill buying NIS 800 thousand of inventory from the plaintiff and the claim being fully withdrawn.

This is not an existential threat. But it does show something important: when Brill tries to extract more value from existing brand rights by expanding categories, that can also create contractual and commercial friction. So the Lee Cooper expansion is not only a growth option, it is also an execution and governance test.

The war hurt, and compensation only offset part of the damage

The fifth trigger: according to Brill's own estimate, the June 2025 operation "With a Lion's Strength" cost the group about NIS 23 million of sales, roughly NIS 14 million of gross profit and about NIS 11 million of operating profit. The company recognized NIS 3.2 million of war compensation in 2025, while another NIS 2.2 million of claims remained unapproved at the reporting date and therefore were not recognized as income.

The point is simple: compensation offset part of the damage, not all of it. Anyone looking only at other income misses that the year included both a real operating hit and a one-off support line.

Efficiency, Profitability And Competition

The gross-margin improvement is real, but it did not come from healthy demand across the board

The impressive data point of the year is gross margin. It rose to 54.4% from 51.5%, while revenue fell to NIS 569.5 million from NIS 579.2 million. That is not trivial. Brill explains the improvement through three main drivers: inventory efficiency that began in the prior two years, a higher retail mix after the ALDO acquisition, and a weaker dollar that lowered inventory costs.

But this is exactly where the read needs discipline. This was not a year of broad-based demand recovery. Same-store sales fell 2.7%, with Footwear down 0.4%, Fashion down 2.9% and S.B.N down 7.7%. Only Super Brands showed a 2.2% increase, and even there the segment still posted a small loss. In other words, Brill improved gross profitability despite weaker demand, not because all brands were suddenly firing together.

One more detail matters here. VAT increased at the start of 2025, and the company says part of that increase was effectively absorbed out of gross profit because the market is price-sensitive. So the margin improvement is impressive, but it also reminds readers that the competitive environment still limits how much cost can really be passed through.

Not every segment improved, and that is where the real picture sits

Once the segments are laid out, the cash and friction points become clear.

The Footwear segment weakened slightly in revenue, from NIS 214.4 million to NIS 210.6 million, but remained the group's largest profit engine with NIS 23.0 million of segment profit. S.B.N fell in revenue from NIS 202.4 million to NIS 184.0 million, but remained profitable with NIS 17.0 million. By contrast, Fashion deteriorated to a NIS 4.5 million loss, and Super Brands stayed slightly loss-making despite a sharp rise in revenue.

That point matters. ALDO added volume, but it has not yet proven that it improves segment-level economics after all layers of cost. If the brand were only adding gross profit without demanding rent, payroll, advertising and depreciation, that would already be visible in the segment result. It is not there yet.

For investors, the message is straightforward. Brill has not yet reached a point where all operating layers pull in the same direction. Footwear and S.B.N are holding the result. Fashion is hurting it. Super Brands is still in proof mode. So the company looks less like a broad repair story and more like two profitable engines funding a wider transition.

Even in a franchise-heavy model, Brill still funds a large part of the risk

Another insight that is easy to miss sits inside the store model. Brill operates through three formats: direct stores, full franchisees and operational franchisees. But across all three, inventory remains with the group, promotions are centrally set, and sales run through the group's systems.

That is not a footnote. It means the franchise model reduces some store-level cost, but does not really move inventory and pricing risk off Brill's books. So even with a broad franchise footprint, the company remains highly exposed to sell-through, seasonality and markdown pressure.

The filing shows this clearly: group inventory ended 2025 at NIS 150.5 million, almost unchanged from 2024, despite the sales decline during the June operation and despite the addition of NIS 10.6 million of ALDO inventory that did not exist a year earlier. That is a real management achievement, but also a reminder of how intensive the inventory balancing act remains.

Cash Flow, Debt And Capital Structure

The right cash frame here is all-in cash flexibility

For Brill, it is not enough to stop at operating cash flow. That is an important number, but it does not answer the real question: how much cash remains after the actual cash uses of the business. So the right frame here is all-in cash flexibility, meaning the cash left after investment, lease principal, interest and debt service.

On that basis, the picture is much less comfortable than the operating headline. On one hand, cash flow from operations was NIS 113.1 million, slightly above NIS 112.3 million in 2024. On the other hand, during the same year Brill also spent NIS 16.6 million on investment activity, paid NIS 57.1 million of lease principal, NIS 25.4 million of interest, reduced short-term credit by NIS 14.1 million, and repaid NIS 22.4 million of long-term loans, partly offset by NIS 26.0 million of new long-term borrowing. After all of that, cash increased by only NIS 3.5 million to NIS 14.3 million.

That is the cash heart of the story. The business can generate operating cash, but the lease and interest layers consume a large share of it before it becomes real flexibility.

Lease obligations are larger than bank debt, and that changes the read

Brill is not exceptionally leveraged in the narrow classic sense, but it is very heavy in leases. Credit from banks and others totaled NIS 121.4 million at the end of 2025. Against that, lease liabilities stood at NIS 57.6 million in the short term and NIS 169.7 million in the long term, together NIS 227.3 million. In its liquidity table, the company even presents NIS 300.3 million of forecast cash flows tied to lease obligations.

That distinction matters. Anyone looking only at bank debt misses a large part of the pressure. Economically, store rent is one of the central leverage layers in Brill. That also explains why EBITDA of NIS 103.0 million does not feel nearly as large as it sounds in the headline.

The covenants look comfortable, but the S.B.N layer still matters

At the Brill parent level, the picture is reasonable. Total equity as a percentage of assets stood at 52%, against a minimum requirement of 30%, and tangible equity as a percentage of the balance sheet stood at 28%, against a 14% minimum. Those are comfortable figures.

The more interesting point sits inside S.B.N. At the end of 2024 the subsidiary had not met its EBITDA-to-debt-service covenant, but in 2025 it returned to compliance with a ratio of 2.44 against a 1.7 minimum. That is a real improvement, and management explicitly links the better position to expected lower credit usage, financing costs and interest rates. But this is still not an enormous cushion. It is a recovery, not full ease.

From a market perspective, that means the 2026 story is not only about whether Brill can keep improving gross margin. It is also about whether it can protect a cleaner covenant cushion without leaning on one-off support.

Forecasts And Forward View

Before moving forward, here are four non-obvious points that frame the 2026 read:

• The gross-margin improvement did not come from broad-based growth. It came from a better sales mix, a weaker dollar and earlier inventory work.
• ALDO broadens the footprint and increases control, but it also adds direct-store burden, lease exposure and operating cost.
• 2025 other income contains items that helped the headline materially, war compensation, evacuation fees and a bargain-purchase gain, so the year should not be read as though all improvement is fully recurring.
• S.B.N's return to covenant compliance is good news, but it still reflects a business that requires discipline, not a structure that is fully relaxed.

From here, 2026 looks like a proof year, not a breakout year. There is no explicit numerical management guidance on revenue or profit, but there are enough signals to understand what the market will test next.

What has to happen for the read to improve

The first thing is a return to stable or positive same-store sales in Gali and Lee Cooper. In 2025 the two most important operating formats, Gali and Lee Cooper, posted negative SSS of 0.4% and 2.1% respectively. Without improvement there, the better margin will remain dependent on structure and currency rather than cleaner demand.

The second thing is for Super Brands to become genuinely profitable. In 2025 the segment jumped in revenue, but still ended in a loss. If 2026 shows ALDO and the broader brand portfolio translating into positive segment profit, that would be real proof that the acquisition created operating value rather than only volume.

The third thing is relief in finance expense. The company itself says a 1% rise in interest over a full year would add about NIS 1.2 million to annual finance expense, and management is clearly leaning on a friendlier rate backdrop. If that comes together with lower short-term credit usage, the market will begin to read Brill differently.

The fourth thing is evidence that the police tender and the license extensions actually generate sales without requiring deeper pricing concessions or heavier working-capital support. Until numbers appear, those remain optional upside rather than the thesis itself.

This chart matters because it shows two things together: the sharp second-quarter hit during the June 2025 operation, and the fact that the fourth quarter was not especially strong either, partly because warm weather extended into mid-December. In other words, some of the weakness is one-off, but not all of it.

What could change the market reading in the short to medium term

In the near term, the market will likely focus on a few clear checkpoints:

1. Whether the June 2025 sales weakness was purely war-related or a sign of broader consumer softness.
2. Whether ALDO starts to improve operating profit, not only gross profit.
3. Whether finance expense begins to reverse after the nearly 40% jump in 2025.
4. Whether the remaining NIS 2.2 million of unrecognized compensation gets approved, and what that means for the next other-income line.

The broader message is this: Brill does not need another year that merely looks nicer at the margin line. It needs a year in which the operating improvement survives leases and interest and finally reaches the net line and the cash line.

Risks

The first risk is weak demand that can look better than it really is because of mix

Revenue fell only modestly, but same-store sales were already down in 2025. If the consumer backdrop stays weak, Brill may need to lean even more on promotions, price concessions and tight inventory control. That is a standard retail risk, but it matters more here because inventory still sits on Brill's balance sheet even in a large part of the franchised network.

The second risk is a heavier operating structure after ALDO

ALDO increased Brill's exposure to direct stores, payroll, depreciation and leases. That can pay off, but it can also work in the other direction if store productivity is not good enough. As long as most of the chain is still directly operated, that risk remains live.

The third risk is rates, leases and FX

Finance expense rose to NIS 32.2 million, including NIS 13.6 million of lease-related interest and NIS 11.5 million of interest on credit and loans. In addition, the weaker dollar generated a net FX loss of NIS 6.0 million. Management argues that the lower dollar could help future gross margin through inventory cost, but for now the effect in the reported year was negative.

The fourth risk is the legal and compliance layer

The Lee Cooper settlement closed one file, but not the entire legal front. The company still faces a class action over marketing to former Yerotex customers in the amount of NIS 5 million on a preliminary basis, a remote-selling case tied to shipping-fee refunds, and another case related to price presentation on websites. In some of these cases the company explicitly says it cannot yet estimate the outcome. This is not a thesis-breaker on its own, but it clearly adds to the wider operational and regulatory friction.

The fifth risk is dependence on brands, imports and suppliers

Brill buys products from more than 100 suppliers, mainly in the Far East, but it also has one material supplier, VF International, from which it bought NIS 42.5 million in 2025, equal to 19.3% of total purchases. That is not an extreme dependency, but it is large enough to matter, especially in a group built on imported goods and third-party brand rights.

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Conclusions

Brill ends 2025 with real operating improvement that should not be dismissed, but also with clear proof that the improvement is still not clean enough. What supports the thesis now is better inventory discipline, a higher gross margin, the ALDO acquisition and S.B.N's return to covenant compliance. The main blocker is that leases, interest and weak same-store sales still prevent the operating improvement from flowing cleanly to equity holders. Over the short to medium term, the market will mainly test whether ALDO moves from promise to real profitability and whether finance expense finally starts to ease.

Current thesis in one line: Brill looks better today at the store and gross-margin level, but still not good enough at the level of free equity cash.

What changed in this cycle? The center of gravity moved from a pure inventory-cleanup story to a broader activity-mix story. ALDO, the license extensions and the institutional tender all open possibilities, but they also make the structure heavier. The strongest counter-thesis is that 2025 will prove to be a combination of FX, compensation and bargain-purchase support, while the underlying demand picture remains weak. What could change the market reading? Clear evidence that Super Brands turns profitable and that better gross margin actually survives the lease and interest layers.

Why does this matter? Because Brill is no longer being tested only on whether it can sell shoes and clothing. It is being tested on whether a broader multi-brand structure with heavy leases and more direct control can produce clean value rather than only more volume.

Over the next 2 to 4 quarters, the thesis gets stronger if same-store sales improve, if ALDO shows cleaner profitability, and if finance expense eases materially. It weakens if sales stay soft, if Super Brands remains loss-making, or if the lease and interest layers keep swallowing the operating result.