Bubbles: The Retail Engine Still Works, But The Funding Wall Got Higher in 2025

Getting To Know The Company

Bubbles can look, from a distance, like a small digital-fashion story built around DATA, AI, and Omni Channel language. The 2025 numbers show a much more grounded picture. This is still mainly an Israeli fashion-commerce company. The retail and wholesale segment generated ILS 41.2 million of group revenue, about 88% of the total, and ILS 4.94 million of segment profit. The partnerships segment, which is supposed to carry the technology and blended-channel narrative, contributed only ILS 5.5 million of revenue and ILS 109 thousand of segment profit.

What is actually working now? The core commercial engine is still alive. Physical sales in the operating-franchise model rose to ILS 16.0 million, the broader trade business grew slightly to ILS 41.2 million, and gross margin still held at a relatively healthy 52.4% of revenue. What is still not clean? Adjusted EBITDA fell to ILS 5.05 million, operating profit almost disappeared, and net loss widened to ILS 3.8 million.

The active bottleneck is not demand. It is funding and working capital. At the end of 2025 the company had only ILS 209 thousand of cash on hand, total bank debt had reached ILS 38.5 million, working capital had fallen to ILS 2.5 million, and the second half alone already produced a net loss of ILS 4.3 million. That is exactly the point a superficial read can miss if it focuses only on roughly stable revenue and the language of growth, partnerships, and artificial intelligence.

The market screen matters here as well. As of April 6, 2026, market cap stood at about ILS 18.6 million and daily turnover was about ILS 53 thousand. This is a relatively illiquid stock with negligible short interest, so the real debate is less about speculative positioning and more about a basic question: can the business convert an attractive gross margin into actual cash and a real funding buffer?

The short table below frames the company’s economic map:

Events And Triggers

The first trigger: the shift to a Licensing model in several brands changed the economics of the business more than it changed total revenue. Management describes a move that can deliver a better gross margin, but it also requires earlier payments and advances for future collections. The cost of that move is visible in the balance sheet: suppliers fell from ILS 9.19 million to ILS 7.33 million while total bank debt rose from ILS 29.4 million to ILS 38.5 million. This is not simply growth through higher sales. It is growth through terms that require more funding.

The second trigger: the launch of Mio Scent added a new activity layer in scent-diffusion systems and fragrance solutions. At closing, the company paid ILS 2.768 million in cash plus ILS 411 thousand of transaction costs, received an additional ILS 5 million of financing in September 2025 to establish the activity, and management says the new business added about ILS 4 million of revenue during the year. This broadens the story, but it also adds complexity, funding needs, and expenses that have not yet fully proven their return.

The third trigger: management also executed a real real-estate efficiency move. Half of the Holon office was sublet, creating a net investment in lease of ILS 2.556 million and finance income of ILS 300 thousand. That is a useful sign that management is actively trying to monetize existing assets and reduce the fixed-cost burden. But the same move also created a capital loss of ILS 189 thousand, so this is not a magic accounting fix that suddenly creates a large new cushion.

The fourth trigger: on December 31, 2025, the company signed agreements to sell rights to receive 8 million treasury shares for total consideration of ILS 2.4 million, at ILS 0.30 per share, about 24% above the market price at signing. From a pricing perspective, that is favorable. From a balance-sheet reading, it says something sharper: Bubbles had to pull cash out of dormant treasury inventory, and by year-end the amount still sat in receivables rather than in cash.

The fifth trigger: the With Lion’s Might military operation cost the company about ILS 2.5 million of sales, according to management, because warehouses were closed and franchise activity was largely suspended, with the group’s websites as the main exception. By year-end the company had received ILS 365 thousand of advances tied to the operation and expected about ILS 320 thousand more. That explains part of the noise in the year, but not the full pressure that built in the second half.

What matters is how these triggers connect. The new 2025 story is not just “more activities.” It is a deeper change in the operating terms of the business: more inventory, more early payments, more debt, and more reliance on future expansion to justify costs already paid today.

Efficiency, Profitability, And Competition

The core point in 2025 is that the problem is not the top line. It is the distance between gross profit and the operating line. Revenue barely moved and slipped only slightly from ILS 46.9 million to ILS 46.7 million. Gross profit fell just 2.4% to ILS 24.5 million, and gross margin moved from 53.6% to 52.4%. Up to that point, the deterioration still looks manageable. From there the slide becomes much sharper: selling and marketing expenses rose 12.3% to ILS 15.1 million, other income turned into a net expense of ILS 1.36 million, and operating profit collapsed from ILS 3.65 million to only ILS 278 thousand.

That move matters because it breaks the idea that broadly stable sales are enough to stabilize the company. They are not. In 2025 the company managed to keep revenue roughly flat, but it did not keep enough discipline across the rest of the P&L to let gross profit reach the operating line.

What Actually Drove The Erosion

Selling and marketing expense rose by ILS 1.66 million. This was not just more advertising. Inside that line, depreciation and amortization jumped from ILS 1.96 million to ILS 3.50 million, Mio Scent added its own expense layer, and lower marketing commissions were not enough to offset it. By contrast, general and administrative expense actually fell from ILS 8.51 million to ILS 7.77 million, mainly because of an efficiency plan that reduced compensation and technology costs. So the problem is not that management lost control of everything. The problem is that new expansion layers and heavier amortization are sitting on top of a business that is still too small.

The other-income line also distorted the picture. In 2024 the company recorded ILS 1.49 million of other income. In 2025 that turned into a net expense of ILS 1.36 million, mainly because of a revised estimate for state grants and a capital loss tied to the sublease move. That needs normalization. Part of the operating collapse came from accounting swings and one-off noise. But even after that adjustment, a real problem remains, because finance expense alone, at ILS 4.64 million, still absorbs all of operating profit.

The Second Half Is The Real Starting Point

Anyone reading only the full-year column misses the sharpest point in the report. The first half of 2025 was still broadly acceptable: ILS 24.6 million of revenue, ILS 13.98 million of gross profit, ILS 3.01 million of operating profit, and ILS 502 thousand of net profit. The second half looked very different: revenue fell to ILS 22.1 million, gross profit fell to ILS 10.5 million, operating profit turned into a loss of ILS 2.74 million, and net loss widened to ILS 4.30 million.

That is not just a quarter-to-quarter wobble. It is the real starting point for 2026. The company enters the next year from a weak second half, not from the more comfortable full-year average.

What The AI Layer Is Actually Worth

This is where the company narrative needs discipline. Bubbles talks about technology, personalization, data, bots, retention, and AI tools. All of that may be real at the infrastructure level. But 2025 shows that the actual economic weight of the partnerships layer weakened. Segment revenue fell from ILS 6.39 million to ILS 5.51 million, and segment profit collapsed from ILS 1.40 million to ILS 109 thousand. Meanwhile, classic trade rose slightly in revenue and still produced almost all of the group’s segment profit.

Put more simply, the AI layer likely helps efficiency, marketing, and operations. It has not yet proven itself as a separate profit engine. That is an important distinction.

The sales channels show the same point. Online retail sales fell from ILS 6.63 million to ILS 5.68 million, while physical operating-franchise sales rose from ILS 15.30 million to ILS 16.03 million. Independent wholesale slipped from ILS 17.66 million to ILS 16.76 million, and classic-franchise sales slipped from ILS 2.87 million to ILS 2.77 million. So 2025 was held together mainly by physical trade and the addition of Mio Scent, not by a stronger online engine.

On competition, the picture is also two-sided. The company sells premium brands through online platforms, physical stores, and about 80 wholesale points of sale, but it still competes against boutiques, physical retail chains, and international online platforms active in Israel. In addition, the rise in the de minimis customs threshold to USD 130 can keep sharpening foreign e-commerce pressure. In that environment, a good marketing stack helps. It does not remove pricing pressure, traffic pressure, or conversion pressure.

Cash Flow, Debt, And Capital Structure

The correct read of 2025 runs through cash flow. Here the framing has to be explicit: the read here uses an all-in cash flexibility frame, meaning how much cash is left after the period’s actual cash uses, not a normalized cash-generation view before discretionary investment. On that basis, the picture is weak.

Cash flow from operations fell from ILS 5.17 million in 2024 to only ILS 890 thousand in 2025. Management’s explanation is not technical fluff. Receivables rose by about ILS 1.5 million because of Mio Scent, suppliers fell by ILS 1.8 million because of the Licensing shift, and payables also moved. Put differently, the company did not lose cash because of one isolated item. It lost cash because the business itself became more working-capital intensive.

This is where the real bottom line of flexibility appears. In 2025 the company generated ILS 890 thousand of operating cash flow, spent ILS 5.815 million in investing cash flow, and had ILS 1.083 million of lease-related cash outflow. So before outside funding, the business showed a cash shortfall of about ILS 6.0 million. That is the heart of the story.

Where Cash Got Stuck

Investing cash flow alone included ILS 2.768 million paid for Mio, about ILS 2 million invested in intangible assets, and about ILS 1.6 million of fixed-asset purchases. Those are real uses, not presentation choices. That is why it is not enough to hide behind adjusted EBITDA of ILS 5.05 million. The business does produce EBITDA, but in 2025 it did not produce enough cash from it to fund both expansion and the new operating model.

The other side of the story is that management did manage to bridge the gap through the funding layer. Financing cash flow was positive ILS 4.87 million, mainly because credit facilities were expanded. That is exactly why year-end cash did not collapse even more sharply. But this is not an economic solution. It is a bridge. And when that bridge rests on banks and covenant compliance, it also becomes the main bottleneck in the thesis.

Debt Structure And Covenants

Total bank debt rose from ILS 29.4 million to ILS 38.5 million, with ILS 31.7 million already classified as current. Equity fell to just ILS 19.5 million. In other words, bank debt is now almost double reported equity. On a market screen, the point is even sharper: the company’s current market cap is far smaller than total bank debt.

The story becomes more complicated when equity quality is examined. Reported equity stands at ILS 19.48 million, but it includes ILS 12.31 million of intangible assets and ILS 5.24 million of deferred tax assets. That does not mean the equity is fake. It does mean the hard cushion against banks and suppliers is much thinner than the headline balance sheet suggests.

Covenants now matter a lot. The company is in compliance with all financial covenants at one bank. At the second bank, it met only two out of three financial tests as of December 31, 2025. At that date it had already received a letter stating that full covenant compliance would only be required starting in June 2026. That point is critical. On one side, there is no immediate credit event hanging over the company. On the other side, the window is clear and limited. If the company does not comply later on, interest rates may increase by 2%, and the banks also retain acceleration rights.

The short table below frames the funding layer:

What The Treasury-Share Sale Really Says

The sale of rights to 8 million treasury shares is not a classic primary-equity issuance, so it is less dramatic than a fresh-dilution headline. But economically it still says something important. The company monetized part of its treasury-share pool. When that sits next to ILS 209 thousand of cash, ILS 38.5 million of bank debt, and a covenant test coming back in June 2026, it is hard to read the move as purely optional.

Outlook And What Comes Next

Before looking at management’s target list, four findings need to be fixed in place:

• First: 2026 starts from a very weak second half, not from a comfortable annual average. The true base is a second-half operating loss of ILS 2.7 million.
• Second: order backlog rose slightly to ILS 15.64 million, but all of it is expected to be recognized already in the first half of 2026. The company also says that because of the Licensing shift, winter-collection sales are concentrated in April-May. The 2026 test therefore arrives early.
• Third: there is a real potential tailwind in gross margin, because about 70% of the company’s purchases are affected by the dollar rate and management expects lower cost of sales and better gross profit in 2026 if the shekel remains strong.
• Fourth: the funding grace period is time-limited. June 2026 is a real deadline for full covenant compliance at the bank that granted temporary relief.

From there, management’s targets can be assessed. The company talks about opening 3 to 5 more stores, expanding the men’s and women’s activity around Black Dot, exploring international expansion, widening adult wholesale points, considering another acquisition or merger, and deepening Mio Scent. That is a very broad target list relative to the company’s size and funding constraints.

That is why 2026 does not look like a breakout year. It looks like a proof year. Not because there are no growth engines, but because the company first has to prove that expansion does not keep breaking the funding layer beneath it.

There is a positive path here. If the stronger shekel really lowers cost of sales, if the early-2026 backlog converts into revenue without further stressing working capital, and if Mio Scent shows that it adds not only sales but also cash, the picture can improve in the coming reports. Growth in the adult category around Black Dot can help as well, because management clearly marks it as one of the main expansion levers.

But there is an equally clear other side. Opening 3 to 5 stores, expanding abroad, and pursuing another M&A step before covenants are clean and the second half has stabilized could deepen the same problem the company is trying to solve. That is what separates healthy growth from growth financed at an increasingly heavy cost.

For the reading to improve over the next 2 to 4 quarters, four things need to happen together:

• Early-2026 backlog needs to convert into revenue and gross profit without another big working-capital hit.
• Finance expense needs to stop absorbing all operational improvement.
• Operating cash flow needs to recover materially from the ILS 890 thousand posted in 2025.
• The company needs to reach June 2026 able to comply with all financial covenants without asking for more time.

Risks

Funding and covenants: this is the central risk, not a footnote. One bank has already given the company time until June 2026 to achieve full compliance. If execution does not improve by then, the cost can be higher interest, renewed bank pressure, and less operating flexibility.

Import, FX, and logistics: much of production comes from the Far East, about 70% of purchases are affected by the dollar, and the company is exposed to shipping times, freight prices, and geopolitical disruption. None of that had a material effect on 2025 results, but management itself says it cannot properly estimate the future impact if conditions worsen.

Dependence on brand suppliers: the company explicitly says it depends on each of the premium-brand suppliers it markets in offline and online activity. That matters because brand identity and the ability to retain exclusivity or marketing rights are a big part of the moat. At the same time, it is also a risk, because losing a key brand hits both demand and competitive positioning.

Inventory and fashion risk: inventory stood at ILS 15.38 million, about 19% of total assets, and average inventory days were 229. Management says inventory older than two years is not material, but in fashion the risk of stock mismatched to trend never disappears. That is exactly why inventory was also flagged as a key audit matter.

Digital marketing, data, and cyber dependence: the company says outright that it does not have real substitutes for effective online marketing platforms in terms of audience reach. If digital-marketing efficiency deteriorates, if there is a technology failure, or if reputation is damaged, the hit will flow directly through traffic, conversion, and sales.

Competition and regulation: the higher USD 130 customs threshold can keep strengthening foreign platforms against local players. For a company whose online channel already weakened in 2025, that is not a side issue.

Conclusions

By the end of 2025 Bubbles looks less like a growing retail-tech company and more like a fashion business that still knows how to sell but still does not know how to fund its expansion comfortably. The core trade engine has not broken, the stronger shekel may help gross margin, and Mio Scent does add a new growth layer. But all of that remains only a partial story if debt keeps rising faster than cash and if the second half remains the business’s true economic baseline.

Current thesis: Bubbles’ retail engine still works, but the Licensing shift, the Mio Scent expansion, and the high bank-debt load have pushed the company into a clear financing test.

What changed: in 2024 it was still possible to read the company as one that was expanding while keeping some profit discipline. In 2025 it became clear that expansion is not solving the funding problem. It is pushing it forward and making it sharper.

Counter thesis: the second half of 2025 may have been unusually weak, the stronger shekel may lift gross margin in 2026, and Mio Scent plus Black Dot may still create a real new growth engine that eases the covenant pressure.

What could change the market’s interpretation in the short to medium term: proof of better gross margin and better cash flow already in the first half of 2026, together with clean covenant compliance by June 2026, could change the tone relatively quickly. More expansion without better cash conversion would do the opposite.

Why this matters: Bubbles is sitting right on the line between a small company with a real commercial engine and a company financing growth too aggressively for its actual carrying capacity.

If 2026 shows that the company can convert backlog and FX tailwinds into better gross profit, stabilize the second half, and reach June 2026 without renewed bank pressure, the reading will improve. If not, 2025 will be remembered as the year in which Bubbles expanded its business while also increasing its financing friction.