Multi Retail 2025: The Balance Sheet Calmed Down, Now The Stores Have To Carry The Story

Getting To Know The Company

Multi Retail is first and foremost a physical retail operator with a strong online layer, not an internet company that happens to own a few stores. The company operates 52 stores under the ACE, Auto Depot, Beitili and Urban brands, employs 974 people, and also owns the Ace on-line activity. That matters because anyone who looks only at online growth misses the real economics: rent, inventory, sourcing, store productivity and the ability of a broad physical network to justify itself.

Another important point is that the operating activity sits almost entirely in the listed company itself. There is no material holding-company layer standing between the business and ordinary shareholders. When one segment improves or weakens, the effect shows up very quickly at shareholder level. That makes the story easier to read, but it also means the company cannot hide behind presentation language. If the stores do not hold profitability, the damage goes straight into earnings and cash flow.

What is working right now? Three things. First, Ace on-line remains a profitable engine, with segment EBITDA of NIS 15.9 million excluding IFRS 16 even though reported revenue fell. Second, Home Design went through an aggressive cleanup, and adjusted EBITDA moved to a profit of NIS 2.8 million from a loss of NIS 3.8 million a year earlier. Third, the balance sheet calmed down materially. The company ended the year with NIS 50.3 million of cash and cash equivalents, only NIS 20.7 million of bank loans, and a net financial asset position of NIS 29.6 million excluding leases.

What is still not clean is demand. Company revenue fell in 2025 to NIS 752.2 million from NIS 786.1 million in 2024. The Home Improvement and Auto segment, which still carries most of the group’s scale, fell to NIS 496.9 million of revenue from NIS 523.2 million. Home Design still did not produce positive reported EBITDA excluding IFRS 16. And anyone reading the net-cash-type story as if this were already a light and flexible company is missing the fact that lease liabilities still stand at NIS 381.8 million, with contractual lease payments of NIS 86.3 million due within a year.

The opening conclusion is straightforward. 2025 repaired the financing problem faster than it repaired the demand question. That is why 2026 looks less like a breakout year and more like a proof year. What will determine whether the market gives the stock more credit is not another online headline, but whether the stores, and especially Home Design, can sustain profitability without another round of closures, inventory cleanup or macro help.

• First: 2025 improved the capital structure, but it did not settle the argument on revenue quality.
• Second: Ace on-line looks weaker in reported revenue than it really is, because more activity runs through franchisees and marketplace partners and is booked on a net basis.
• Third: Home Design improved, but a large part of the improvement came from closing 5 weak stores and moving to a smaller, cheaper format, not only from clean organic growth.
• Fourth: 2025 cash flow was strong, but it also leaned on a NIS 43.6 million inventory release, so it should not be confused with an automatically recurring cash run rate.

Events And Triggers

The first trigger: Home Design went through a real reorganization, not just a presentation change. In 2025 the segment closed 5 stores whose negative contribution totaled about NIS 4.4 million. At the same time, it opened 4 Beitili stores in a new format of roughly 350 square meters each, versus an average of roughly 1,000 square meters in the existing network. This is not just cost cutting. It is an attempt to change the economics of the chain: less floor space, less display inventory, more focused selling and more digital support. The March 2026 investor presentation adds that another Beitili store is planned for the second quarter of 2026 and one more for the third quarter. In other words, the move did not end in December. It only moved into the test stage.

The second trigger: the company removed a real logistics cost. On May 5, 2025 it announced that it would not exercise the option at the Ashdod logistics center, and the annual operating cost of that site was estimated at about NIS 3 million. The exit was later brought forward to September 1, 2025. Investors can dismiss this as an unexciting detail, but in a lease-heavy retail network every fixed cost that disappears changes the earnings balance.

The third trigger: the security environment continues to flow directly into turnover. The June 13 to June 24, 2025 operation closed the Home Design stores, shortened operating hours in Home Improvement and Auto, and extended delivery times at Ace on-line. That is not a footnote, because the company itself ties part of the second-quarter damage to that period. After the balance-sheet date, on February 28, 2026, Israel launched another military operation, and the company already reports lower customer traffic in Home Improvement and Auto and on the online sites, together with the closure of Home Design stores until restrictions were eased. Anyone trying to read 2025 without placing 2026 next to it is reading only half the story.

The fourth trigger: 2025 also brought real regulatory noise into earnings. The company received notice of an intended consumer-protection sanction of NIS 2.1 million, and it recognized the full amount as an expense. One class-action case ended in a low-value settlement, but two additional class-action claims remain open, one on privacy and one on delivery policy. This is not existential risk, but it does create reputational, managerial and accounting friction at exactly the time the company is trying to argue that the story has stabilized.

The fifth trigger: capital management and compensation tell us something about management and control-holder confidence. On November 24, 2025 the company approved a NIS 4 million dividend that was paid in December. On January 7, 2026 it approved a three-year extension of the control holders’ management agreement, with monthly management fees updated to about NIS 118 thousand. At the same time, the compensation policy was broadened to allow more flexibility in CEO bonuses, and on March 26, 2026 the board approved a discretionary bonus of about NIS 237.5 thousand for the CEO in respect of 2025. None of that breaks the thesis, but it does remind shareholders that the room created in the balance sheet does not remain entirely as a reserve for them.

Efficiency, Profitability And Competition

The operating story of Multi Retail in 2025 was not a broad-based improvement story. It was a story of three engines moving in different directions. That is exactly where a quick read of the consolidated revenue line can mislead.

Who created value and who only carried volume

At group level, gross profit fell to NIS 371.2 million from NIS 389.2 million, and operating profit fell to NIS 32.2 million from NIS 40.9 million. On a full-year basis, the company still did not show clean operating leverage. But below that line the split is clear: Ace on-line held high profitability, Home Design went through a meaningful reset, and Home Improvement and Auto carried most of the decline.

Ace on-line: less reported revenue, better profit quality

Ace on-line is the best example of why reported revenue cannot be read without understanding the business model. Segment revenue fell in 2025 to NIS 118.1 million from NIS 123.5 million, but merchandise turnover fell only to NIS 179.3 million from NIS 182.4 million. In other words, the decline in economic activity was much smaller than the decline in reported revenue.

The reason is mix. Marketplace and franchise turnover within Ace on-line rose to 45.0% of turnover, from 42.4% in 2024. When that mix rises, more activity is booked net as commission income rather than gross as full product sales. That pressures the revenue line, but it improves gross margin and working-capital intensity. That is exactly what happened here. Segment gross margin rose to 48.3% from 47.0%, and segment EBITDA excluding IFRS 16 rose to NIS 15.9 million from NIS 15.2 million.

The link to the physical stores is also important. 55.8% of customers in the segment chose click and collect through physical stores, and 28.4% of buyers who came to collect added another purchase in the store. That means the online layer is not separate from the chain. It feeds traffic into it. On the other hand, caution is still needed. The rate of extra in-store purchases by collection customers fell from 30.4% to 28.4%, so the synergy is real, but it is not automatically strengthening.

What really matters is that Ace on-line no longer looks like a distant option. It already looks like an existing earnings engine. Still, this is not clean growth in the classic sense. As more turnover comes through marketplace partners and franchisees, a larger share of the improvement comes from a lighter commission model rather than from full-ownership retail sales. That is good for working capital and margins, but it also means the next question is how much of this value remains with the company if competition over commissions, advertising and trade terms becomes tougher.

Home Design: a real recovery, but not yet self-sustaining

Home Design sits at the center of the thesis and is also the most sensitive part of it. On the positive side, there is a genuine improvement here. Same-store turnover rose 8.5% to NIS 132.8 million, gross margin improved to 48.4% from 47.0%, and the segment’s online sites already account for 15.1% of turnover versus 10.2% a year earlier. In addition, adjusted segment EBITDA, meaning after neutralizing the negative contribution of the 5 closed stores, moved to a profit of NIS 2.8 million from a loss of NIS 3.8 million in 2024.

On the other hand, reported segment EBITDA excluding IFRS 16 was still negative at NIS 1.7 million. So the company still cannot say that Home Design already stands on its own. What it can say is that the chain was cleaned up, the old format was cut back, and the remaining core looks healthier. That is an important difference. There is structural improvement here. Full profitability proof is still missing.

The choice of the new Beitili format also says a lot about how management reads the sector. If the large legacy stores were still the right economic engine, there would be no need to move to 350-square-meter stores with a narrower display footprint and more digital assortment support. The move says the company now prefers sales density and lower fixed cost over oversized showrooms. That sounds sensible, but it is also an admission that the old format was not producing the right economics.

Home Improvement and Auto: still the anchor, still the weak point

Home Improvement and Auto remains the group’s central asset, and it was also the part that pulled 2025 down. Revenue fell to NIS 496.9 million from NIS 523.2 million, and EBITDA excluding IFRS 16 fell to NIS 26.7 million from NIS 40.7 million. Same-store turnover also slipped 1.2%, to NIS 602.2 million.

There is no magic here. This is a broad physical retail segment with meaningful fixed costs and intense competition. The company says it has no dependence on a specific supplier, and it also states that in this segment it does not depend materially on any inventory supplier. That helps, but it does not remove the challenge. The market is highly competitive, and the company itself points to the entry of food and apparel chains into home products, which can pressure sector profitability.

There is, however, one encouraging signal. According to the March 2026 presentation, adjusted segment EBITDA in the second half of 2025 rose to NIS 19.7 million from NIS 18.0 million in the second half of 2024. That does not erase the full-year decline, but it does suggest that year-end conditions were better than the annual picture alone implies. The real 2026 question is whether the second half marked the start of normalization or only a temporary rebound after a difficult year.

Cash Flow, Debt And Capital Structure

This is the section where 2025 genuinely looks different. Not because the company suddenly became debt-free, but because bank pressure fell sharply. The right framing here is all-in cash flexibility: how much cash remained after actual uses of cash, not after a theoretical normalized free-cash-flow calculation.

The all-in cash picture

In 2025 the company generated NIS 142.1 million of cash flow from operations. Against that it spent NIS 7.2 million on property and other assets, NIS 79.1 million on lease payments, NIS 12.1 million on bank-debt repayment, and NIS 4.0 million on a dividend. After all of that, cash increased by NIS 39.8 million, from NIS 10.6 million to NIS 50.3 million.

That is a real improvement, not an accounting trick. But stopping there would be too easy. Operating cash flow leaned on a material working-capital release. Inventory fell by NIS 43.6 million and receivables fell by NIS 6.7 million, while suppliers actually fell by NIS 6.1 million. In other words, the company did not just generate better cash from operations. It also released goods and cash that had been tied up on the balance sheet. That is legitimate and even welcome, but it is hard to repeat at the same scale next year.

That is exactly why it would be wrong to jump from here to a normalized free-cash-flow claim. The company does not disclose maintenance capex separately, so there is no solid basis for calculating recurring cash generation before growth uses. What can be said with confidence is that 2025 delivered a much better all-in cash picture than 2024, and that the company’s room with banks and suppliers improved materially.

Debt, covenants and what actually improved

The bank-debt picture is much cleaner. Long-term bank loans fell to NIS 20.7 million from NIS 32.7 million in 2024. Excluding leases, the company moved from net financial debt of NIS 22.2 million to a net financial asset position of NIS 29.6 million. The net-financial-debt-to-EBITDA-less-CAPEX covenant, capped at 4.5, no longer looks like a pressure point, and the company says it is in compliance. That is meaningful. Two years ago the story was still about waivers, covenant adjustments and bank agreements. Today that is no longer the center of the read.

This is also where investors should stop before declaring the company light and flexible. As of December 31, 2025, lease liabilities still stood at NIS 381.8 million. According to the liquidity table, contractual lease cash outflows for the coming year alone amount to NIS 86.3 million. In addition, the company itself writes that, even after the improvement, it still has a working-capital deficit, excluding current lease maturities, of NIS 69.6 million. Management says it has enough sources for the next 18 months, which is reasonable given the cash balance and covenant position. But this is still not a company that can be separated from the word leases.

The practical takeaway is that the balance sheet was repaired, but its character did not change entirely. Bank pressure is lower, day-to-day room is wider, and the NIS 4 million dividend signals confidence. Still, this remains a physical retail chain with deep lease obligations, CPI sensitivity and demand sensitivity. Anyone looking for an “unlocked value” story should remember that the accounting layer improved faster than the operating layer.

Outlook

Four points should be kept in mind before getting into the 2026 numbers:

• First: 2026 looks like a proof year, not a breakout year.
• Second: Home Design no longer rests on a vague hope. It rests on concrete assumptions around existing-store growth, online growth and the small-format rollout.
• Third: Ace on-line does not need dramatic revenue acceleration to keep improving, but it does depend on mix and margin staying favorable.
• Fourth: the valuation appendices suggest there is no current book-value impairment problem, but that is not a substitute for proving execution in the market.

Home Design: optimistic budget, but not disconnected from reality

The Home Design valuation work offers a useful window into what management is trying to achieve. The 2026 budget assumes revenue of NIS 148.8 million, up 8.4% from 2025, and operating profit before tax of NIS 3.9 million versus an operating loss before tax of NIS 8.2 million in 2025. That is a sharp improvement.

The internal build of that assumption matters more than the headline. Revenue from existing stores is expected to rise to NIS 102.1 million, up 6.2%. But the valuation report itself notes that about NIS 2.4 million of 2025 revenue was lost because of the June 2025 military operation. After adjusting for that, the implied existing-store growth for 2026 is closer to 3.6% than to 6.2%. In other words, the budget is not purely heroic. It does, however, assume that the security-related disruption does not become permanent.

The second assumption is continued fast online growth. Home Design online revenue is expected to rise to NIS 25.4 million in 2026 from NIS 17.7 million in 2025, a 43.2% increase. That is a high growth rate, but it fits the fact that online already reached 15.1% of segment turnover and that the assortment is being widened.

The third assumption is a fuller contribution from the new small-format stores. The 4 stores opened in 2025 did not operate for a full year, so the budget assumes a natural step-up. That is reasonable. What is still not proven is whether the new format can both protect gross margin and keep enough traffic.

Ace on-line: an improvement engine with a clear bar to clear

Ace on-line’s budget is more modest. Revenue is expected to rise in 2026 to NIS 122.4 million, only 3.7% above 2025. Gross margin is expected to improve to 49.4% from 48.3%, and operating margin before tax is expected to reach 11.1%. In other words, the plan here is not a huge activity jump. It is the view that the existing model is already good enough to squeeze a bit more profit from roughly the same scale.

The valuation report ties that to three factors: better trade terms with suppliers, a lower dollar, and lower logistics costs after shrinking one of three warehouses. That does not sound dramatic, and that is exactly why it is an important test. If 2026 shows that the company can hold a gross margin close to 49% and double-digit EBITDA without a major growth story, Ace on-line will start to be viewed as an established earnings engine rather than just a service layer.

No current book issue, but that is not proof of market value

The valuation appendices show that as of December 31, 2025 there was no need to impair goodwill in any of the three segments. Recoverable amount in Home Improvement and Auto stands at NIS 178.3 million versus a carrying value of NIS 23.5 million. In Ace on-line it is NIS 114.3 million versus NIS 24.3 million. In Home Design it is NIS 62.4 million versus NIS 42.8 million.

This matters, but not for the reason many readers instinctively think. It does not mean the market has to agree with those values. It means the accounting itself is not currently breaking the story. What will break or strengthen the story from here is not the impairment test. It is the ability to convert these plans into reported EBITDA, cash flow and turnover.

What the next 2 to 4 quarters have to prove

The market is likely to watch four things. First, whether Home Design moves to positive reported EBITDA, not just adjusted EBITDA. Second, whether the new Beitili format can produce sales per square meter without sacrificing basket size. Third, whether Ace on-line can hold margins even if the marketplace mix stops improving. Fourth, whether 2025 cash flow was the start of a better trend or simply a successful cleanup year.

The right name for 2026 is a proof year. The balance sheet is no longer the main problem. Now the business itself, and especially the physical store base, has to carry the story.

Risks

Demand, competition and operating environment

The main risk is still demand. The company operates in highly competitive markets, and it explicitly notes the entry of food and apparel chains into home products. In this kind of segment profitability can look stable as long as promotions, mix or traffic cooperate, and then erode quickly when the consumer weakens. The fact that the company links part of the 2025 and early-2026 pressure directly to the security environment underlines how much this remains a traffic-sensitive business, not just a brand story.

Leases, CPI and working capital

The lease layer is still heavy, and that is not a footnote. According to the company, a 1% rise in inflation over a full year increases lease-related payments by about NIS 0.9 million a year. A 1% rise in interest rates cuts net profit by about NIS 0.9 million. On top of that, inventory remains the key operating asset, so any mistake in reading demand or structuring promotions can feed back into the balance sheet very quickly.

Regulation, licensing and governance

Two stores still operate without full business licensing, and the company itself treats this as a regulatory risk that could matter in the short to medium term. Beyond that, the consumer issue does not end with the NIS 2.1 million sanction already recognized. Two class-action claims are still open. These are not amounts that break the group, but they do create distraction and remind investors that in retail, service quality and operational execution can ultimately end up with regulators and courts.

On the governance side, the sensitivity is not dramatic, but it exists. The controlling shareholder held about 69.93% of the company at the report date, the management agreement was extended on improved terms, and the compensation policy was widened. This is not covenant-type risk, but it does mean that not every bit of room created in the balance sheet will necessarily be redirected into an even thicker safety cushion.

Currency and supply chain

A meaningful share of products is imported, mainly in dollars. The company uses derivatives and examines hedging, but it does not apply hedge accounting. That means currency can affect the bottom line both through cost of goods sold and through accounting noise. In addition, while the company says it has no material dependence on a specific supplier, it does disclose one sourcing provider in East Asia through which 16.8% of all supplier purchases passed in 2025. Management says alternatives exist, which helps, but it still shows how sensitive the chain remains to sourcing and supply conditions.

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Conclusion

2025 changed the nature of the Multi Retail debate. Two years ago the central question was debt, covenants and balance-sheet stability. Today the question is different: after store cleanup, online strengthening and working-capital release, can the retail business itself hold clean and repeatable profitability?

Current thesis: the balance sheet was repaired and the online activity is proving it is a real earnings engine, but the stores, and especially Home Design, still need to prove that the 2025 improvement was not too dependent on closures, favorable mix and inventory release.

What changed: the main pressure point shifted from financing stress to execution stress. That is real progress, but it is also a tougher test.

Counter-thesis: the market may still be too harsh. If Home Design has already crossed its real break-even point, and if Ace on-line can keep improving margins without impressive reported revenue growth, 2025 may turn out to be a much better earnings base than it first appears.

What could change the market read over the near to medium term: positive reported EBITDA in Home Design, operating cash flow that remains strong without another unusually large inventory release, and proof that the traffic hit after late February 2026 was temporary.

Why this matters: if 2025 really ended the balance-sheet repair phase, value in Multi Retail will now be determined by retail execution quality rather than by financial survival.

For the thesis to strengthen, the company needs to show three things over the next 2 to 4 quarters: that Home Design stays positive even without adjustments, that Ace on-line holds high profitability even when investors look past the revenue headline, and that cash flow remains healthy after the 2025 inventory release fades. What would weaken the read is a return to material operating losses in Home Design, renewed erosion in Home Improvement and Auto, or cash flow that proves more one-off than it currently appears.