Victory in the First Quarter: Profit Jumped, but Suppliers and Holiday Timing Carried Part of the Improvement
Victory opened 2026 with a sharp rise in sales and profit, but part of the picture rests on Passover timing, Gaza sales, and an unusual increase in supplier credit. The next quarters need to show whether same-store sales, online activity, and new branches hold up without that timing benefit.
Victory opened 2026 with a quarter strong enough to change the tone around the company, but not strong enough to close every question left open at the end of 2025. Revenue rose 25.2%, same-store sales jumped 23%, and net profit reached NIS 18.6 million, compared with NIS 2.1 million in the comparable quarter. That is an early answer to the concern that new stores, self-merchandising, and online growth mainly add costs. Still, the quality of the improvement is less clean than the headline: gross margin fell, part of the sales came from Passover timing, Gaza sales, and security-related demand, and the strong cash flow leaned heavily on a rise in suppliers. The current read is that the discount retailer showed real operating leverage when revenue rises, but has not yet proved that its newer growth engines produce repeatable cash at a stable pace. The next proof points are same-store sales after the Passover timing normalizes, the actual wage impact of foreign workers, and whether the supplier increase reverses in the coming quarters.
Company Overview
Victory operates a discount supermarket chain, with 70 stores and about 76.4 thousand square meters of selling space at the end of the first quarter. This is not a company driven by one product or by a new technology. It is a dense retail machine built on sales volume, trade terms with suppliers, store costs, rent, and working capital. The income statement is therefore only half the story. The other half is how much cash remains after leases, inventory, receivables, capex, and dividends.
The previous annual analysis of Victory, published after the 2025 results, left four checkpoints: stabilization in same-store sales, absorption of foreign workers, better profit-to-cash conversion, and proof that online activity and new categories add more than volume. The first quarter answers two of them partially. Same-store sales returned to strong growth, and store-level costs were absorbed better by a larger revenue base. But it still does not close the cash question, because much of the cash jump came from supplier terms and timing.
The business map looks simple: discount stores, an online site, business customers, a credit-card club, parallel imports, and an early move into electronics and household appliances. In practice, each engine tests the same question: does it increase profit and cash, or does it require more inventory, more labor, and more customer credit? That is the difference between a strong quarter and a real improvement in business quality.
The headline numbers are unusually strong. Revenue reached NIS 755.8 million, compared with NIS 603.7 million in the comparable quarter, and operating profit rose to NIS 36.0 million from NIS 13.4 million. Sales per square meter rose to about NIS 10.1 thousand from NIS 8.5 thousand, and same-store sales per square meter rose to about NIS 10.1 thousand from NIS 8.2 thousand. These are not marginal changes, and they explain why net profit rose much faster than revenue.
Still, the jump needs to be read through the comparison base. Passover eve fell on April 1, 2026, so part of holiday purchasing entered the first quarter. A year earlier, Passover eve fell on April 12, so a larger part of that demand fell after the end of the quarter. In addition, the security operation that began on February 28, 2026 lifted sales at first, and the effect then moderated. Gaza sales also began in January 2026, but the company operated as a supplier for about one month and not continuously.
That does not cancel the improvement, but it lowers confidence that the quarter represents a normal run rate. Gaza sales contributed to volume, but they were also cited as one reason for gross-margin erosion because they carried a lower gross margin. Electronics and household appliances were presented as a category with high sales volumes and meaningful shekel margin, but the company still does not split how much operating profit came from that category and how much came from traditional food retail. In this quarter, the question is not whether Victory sold more. It sold much more. The question is how much of the jump will repeat without early Passover demand, security-related demand, and non-continuous Gaza sales.
Operating Profit Was Built on Volume, Not on a Better Gross Margin
The figure that keeps the quarter from becoming full proof is gross margin. It fell to 23.13%, compared with 23.93% in the comparable quarter, even though gross profit in shekel terms rose to NIS 174.8 million. The reasons for the decline matter: wage and related costs from self-merchandising and online activity, together with lower gross margin on Gaza sales. In other words, growth came with a visible economic cost at the margin.
What saved the quarter was the operating layer below gross profit. Selling and marketing expenses rose only 5.5% to NIS 126.6 million, while revenue rose 25.2%. As a result, selling and marketing expenses fell to 16.75% of sales from 19.89% in the comparable quarter. This is the most important answer to the 2025 counter-argument: when revenue is high enough, store costs, wages, and self-merchandising can be absorbed better.
But the proof is still mid-process. Victory received approval to bring in about 600 foreign workers, and by the end of March about 70% had been absorbed into its stores. In the initial phase, wage costs rise because the company does not immediately reduce the existing workforce, so the savings are expected only after full training. The current quarter therefore proves that a high revenue base can absorb the wage layer. It does not yet prove that the efficiency move has been completed.
The online channel tells a similar story. Online sales rose about 20.5% and reached about 7.5% of total sales, compared with 6.8% in the comparable quarter, while the company's target is 10% in the near term. This is a real growth engine, but it also appears among the factors that pressured gross margin. For the market to treat it as a quality engine rather than just a volume engine, it needs to keep growing without extending the receivables cycle or adding a cost layer that erases the benefit.
Cash Flow Jumped, and Suppliers Explain Most of the Surprise
Operating cash flow reached NIS 103.5 million, compared with NIS 37.9 million in the comparable quarter. That is a strong number, and it changed the liquidity picture: cash, deposits, and short-term financial assets rose to NIS 132.8 million, compared with NIS 74.2 million at the end of 2025. But the working-capital breakdown shows where much of the cash came from.
Receivables rose by NIS 57.2 million and inventory rose by NIS 8.0 million, both of which consume cash. The item that offset them was suppliers, which rose by NIS 104.3 million. Part of that increase is explained by higher activity and Passover timing, so it should not be assumed to repeat with the same force every quarter. If suppliers stop funding the growth in the coming quarters, cash flow will be tested again through receivables, inventory, and the true sales pace.
The all-in cash picture in the quarter is better than it was in 2025, but it still requires discipline. In the first quarter Victory generated NIS 103.5 million from operations, paid NIS 27.4 million of lease principal, invested NIS 8.7 million in property and equipment, and repaid NIS 8.3 million of bonds. After those actual cash uses, the company was left with about NIS 59.1 million before dividends. After the balance-sheet date, the board approved a NIS 15 million dividend, and the final Series B bond payment is expected in July 2026. That still leaves a comfortable liquidity buffer, but it does not change the fact that the large economic debt layer in the chain is leases: lease liabilities totaled about NIS 1.28 billion at the end of the quarter.
The Next Quarters Need to Prove This Was Not Just a Holiday Quarter
The first quarter strengthens the positive case for Victory, but in a measured way. The company showed that when revenue rises, fixed and semi-fixed expenses are spread better and operating profit can jump even without gross-margin improvement. It also showed that the cash picture can reopen after a year in which leases, capex, and dividends left too little room.
The next test will be less forgiving. The coming quarters need to show same-store sales without unusual Passover timing, a more stable contribution from online activity and electronics, a real decline in wage costs after foreign-worker training, and working capital that is not again dependent on a jump in suppliers. The counter-thesis is clear: the first quarter may have been an unusual combination of an early holiday, security-related demand, Gaza sales, and supplier credit. If so, part of the improvement will shrink later in the year. If expenses remain restrained and same-store sales keep growing after timing normalizes, 2026 will look less like a recovery year and more like the year in which Victory starts turning growth back into operating profit and cash.
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