Fox Follow-Up: Inventory, Cash Flow, and the Move to Net Debt

The main article argued that Fox is no longer judged only by the top line, but by cash quality. This follow-up isolates the layer where that argument turns from suspicion into arithmetic: consolidated inventory rose to NIS 1.612 billion in 2025 from NIS 1.250 billion, cash flow from operations fell to NIS 882.5 million from NIS 1.154 billion, and the group moved from NIS 331 million of net cash and financial investments at the end of 2024 to NIS 322 million of net debt at the end of 2025.

This is not just a sports-segment story. It runs through a much heavier cash bridge, and through a real gap between the consolidated picture and the cash that actually sits at the Fox parent-company layer. On a quick read, NIS 1.461 billion of cash and financial investments still sounds comfortable. But at the parent-company level, cash fell to NIS 200.2 million, upstream dividends from subsidiaries totaled only NIS 105.8 million, and Fox still paid NIS 183.8 million to its own shareholders. If the question is whether 2025 was a temporary absorption year or the start of a new capital regime, that gap is where the answer sits.

Where the cash got stuck

This is not one segment's inventory problem. The investor presentation shows that inventory rose almost everywhere: fashion and home, sports, Terminal X, and the "others" bucket. That means the issue is broader than a single weak engine. It reflects a wider decision to carry more goods across the chain.

The more important point is that this did not stay at the balance-sheet level. In the cash-flow statement, inventory alone absorbed NIS 342.6 million in 2025, versus NIS 141.0 million in 2024. In other words, that single line deepened the cash squeeze by about NIS 201.6 million year on year. Customers absorbed NIS 7.5 million, other receivables another NIS 7.2 million, and payables added back NIS 81.9 million, but the real working-capital story still sits in inventory. That is not a footnote. It is the core of the 2025 cash deterioration.

There is another non-obvious point here: this inventory build was not really financed by suppliers. In the operating cash-flow bridge, the suppliers and service providers line was a negative NIS 10.9 million. In plain terms, Fox did not get an easy supplier-funding cushion against the additional stock. It funded more of the build itself.

Management also stresses a conservative inventory policy, inventory older than two years is written down by 50%, and inventory older than five years is written down in full. That matters because it reduces the concern that the problem is mainly accounting deferral. But it does not change the economics. Even conservatively valued inventory still ties up real capital, and Fox chose to tie up more of it in 2025.

The cash bridge has to be read on an all-in basis

This is an all-in cash flexibility story, not a normalized cash-generation story. The right question is not how much the business could have produced before expansion. The right question is how much cash was left after the actual uses of cash: investment, lease principal, debt service, shareholder distributions, and minority buyouts.

What the chart makes clear is that the move to net debt did not come from one sudden collapse in operating cash. It came from several layers of cash pressure at the same time. Operating cash flow fell, investing cash outflow expanded to NIS 630.6 million, lease principal alone consumed NIS 582.2 million, long-term debt repayments jumped to NIS 718.0 million, and the group still kept paying dividends and buying out minorities.

On the funding side, Fox did not hide the response. In 2025 it took NIS 956.2 million of new long-term loans, while net short-term credit increased by another NIS 267.8 million. So the move to net debt is not cosmetic. It reflects a real cash bridge in which uses of cash ran faster than the operating engine could fund them.

There is another way to read the same point, through gross bank debt. Including short-term bank credit, that balance rose to about NIS 1.783 billion at the end of 2025 from about NIS 1.281 billion at the end of 2024, an increase of roughly NIS 502 million. Together with the NIS 150 million drop in cash and financial investments, that almost fully explains the group's NIS 653 million swing from net cash to net debt.

The balancing point is that this is still not an immediate liquidity-stress story. Excluding lease liabilities, short-term net financial assets still stood at NIS 755.3 million at year-end 2025, and the company remained within its financial covenants. Net financial debt to EBITDA stood at 0.79, and equity excluding IFRS 16 represented about 32% of total assets. So the right read is not crisis. It is deterioration in flexibility. That is exactly the stage where the market starts asking whether 2025 was a temporary bulge or a real turning point.

The parent-company layer is where the gap becomes visible

This is the piece the consolidated view hides. The consolidated statements show a large group with NIS 1.461 billion of cash and financial investments. But the separate statements show that cash and cash equivalents at the Fox parent company fell to NIS 200.2 million from NIS 397.6 million. Even after adding short-term investments, the parent held only NIS 567.5 million, down from NIS 650.4 million a year earlier.

That matters because the parent-company layer is the layer that pays dividends to Fox shareholders, executes part of the investment program, and carries debt of its own. In 2025 the parent received NIS 105.8 million of dividends from subsidiaries. The main contributors were Retailors with NIS 41.4 million, Laline with NIS 19.3 million, Terminal X with NIS 19.6 million, and Billy House with NIS 18.8 million. In the same year, Fox paid NIS 183.8 million to its own shareholders. In other words, before CAPEX, before lease principal, and before debt repayment, the parent-company layer was already short by about NIS 78 million against the dividend it paid out.

The separate statements also show that this is not just a pure holding-company issue waiting for subsidiary distributions. At the parent-company level itself, inventory rose to NIS 520.6 million from NIS 394.1 million, an increase of NIS 126.5 million. Parent cash flow from operations fell to NIS 337.9 million from NIS 495.7 million, while parent investing cash outflow reached negative NIS 379.8 million, including property and equipment, additional purchases in Itay Brands, Terminal X and Jumbo, and trading securities. So the "parent versus consolidated" gap is not just trapped cash. It is also a parent layer that operates, invests, and consumes cash on its own.

One more detail sharpens the point. At the end of 2025 the parent had current payables to subsidiaries of NIS 63.6 million, versus current receivables of only NIS 24.0 million, and it still carried NIS 95.4 million of loans and capital notes to subsidiaries. So even after a year of upstream dividends, capital still moves between layers in both directions and does not all sit at the listed-company pocket.

What has to change from here

Checkpoint one: inventory has to come down, not only in shekels but also in days. A decline from 186 inventory days is the most direct way to release cash without opening another credit line.

Checkpoint two: the parent-company layer has to receive more cash from subsidiaries than it distributes outward, or it has to slow its own pace of distributions and investment. As long as only NIS 105.8 million comes up from subsidiaries against NIS 183.8 million that goes out to shareholders, the gap will keep closing through debt, through cash erosion, or both.

Checkpoint three: debt growth has to stop. In 2025 the new borrowing bought time, it did not solve the issue. If 2026 brings inventory release, lower investment needs, and continued upstream dividends, Fox can gradually move back out of net debt. If not, net debt may turn from a temporary deviation into the new operating baseline.

Conclusion

The main article marked cash quality as Fox's new fault line. This follow-up shows why. Inventory did not just grow, it absorbed most of the working-capital deterioration. The cash bridge did not just weaken, it became crowded with more investment, more lease principal, more debt service, and continued distributions. And the parent-company layer, the layer that ultimately has to turn consolidated strength into value for public shareholders, looks materially tighter than the consolidated NIS 1.461 billion liquidity number suggests.

Current thesis: Fox's shift to net debt in 2025 was driven less by soft demand and more by a more capital-heavy operating model, with broader inventory, a heavier all-in cash bridge, and a parent company that is being fed by subsidiaries more slowly than it is distributing and investing.

Strongest counter-thesis: inventory, investment, and debt all looked unusually heavy in 2025 because it was an expansion year, so if 2026 brings inventory normalization and lighter investment, the move to net debt may prove transitional rather than structural.

Why this matters: in a broad retail platform, consolidated cash is only the first layer. Capital quality is determined by how much of that cash remains truly accessible at the public-company layer after working capital, leases, debt, and distributions.