Max Stock in the First Quarter: Margin Jumped, Cash Did Not Keep Up With Profit

Max Stock opened 2026 with a quarter that looks strong across almost every profit line: revenue of NIS 401.0 million, gross margin of 45.6%, operating profit of NIS 77.1 million and net profit of NIS 49.9 million. The current read is more constructive than the concern that followed 2025, because the late 2025 margin improvement did not disappear as the new year began. Still, this quarter is not a full proof point. Same-store sales growth of 16.9% is affected by the timing of Passover, and when the comparison is expanded to four months so that the holiday is fully included in both years, the growth rate drops to 9.7%. Cash flow also tells a different story from the income statement: operating cash flow fell to NIS 53.4 million despite the profit jump, mainly because working capital absorbed cash. This is therefore a partial proof quarter: the business is strong and the margin is impressive, but the market still needs to see growth hold without the holiday timing benefit, dollar hedges stop weighing on finance expenses, and the chain can fund store openings, leases and dividends without renewed working-capital pressure.

Passover Opened the Year, but Four Months Lower the Run Rate

The chain is exactly at the checkpoint set by the prior coverage: not just growth, but growth that can hold margin and cash. In the previous annual coverage, the test was whether the 2025 improvement would remain stable once expansion accelerated again. The first quarter gives an initial answer, but not a complete one.

The business remains straightforward: a discount home-goods retailer with 64 stores, 40 of them company-operated, and 71.5 thousand square meters of net selling space in company-operated stores. In March it opened two company-operated stores, in Or Akiva and Be'er Sheva, and in February it closed a franchised store in Jerusalem's Davidka compound. That confirms the company is again expanding the store base it controls directly, where most of its sales, inventory and margin discipline sit.

Company-operated store revenue rose to NIS 369.1 million from NIS 305.9 million in the comparable quarter. Sales to franchisees slipped slightly to NIS 27.0 million, and commission revenue fell to NIS 5.0 million. In other words, most of the growth came from the engine the company controls directly, not from franchisees. That is positive, but it also sharpens the quality-of-growth test: if company-operated stores are leading, the working capital, lease burden and ramp-up costs sit with the company too.

The number that needs cleaning up is same-store sales. In the quarter it rose 16.9%, but management also provides the cleaner comparison base: for the four months ended April 30, with Passover fully included in both periods, same-store sales rose 9.7%. That is still good growth for a mature retailer, but it is well below the headline number. The average basket supports this read: it rose 12.5% in company-operated stores and 14.2% in company-operated same stores. The quarter points to customers spending more per purchase, partly because of higher average-price products, but less clearly to a clean increase in traffic or organic momentum that can be extrapolated as-is.

Margin Held Above 2025, and the Dollar Moved Into Finance Costs

The impressive part of the quarter is margin. Gross margin reached 45.6%, compared with 42.3% in the comparable quarter and 43.9% for full-year 2025. Gross profit rose 27.7% to NIS 182.9 million, faster than revenue. At the same time, selling and marketing expenses fell to 21.7% of revenue from 23.4%, partly because the current year no longer includes the same weight of Portugal-related expenses that burdened the comparable quarter.

But the margin improvement was not purely operational. A lower dollar, lower shipping costs and better trade terms pushed gross margin upward. The same dollar decline also generated a NIS 4.9 million loss from revaluing future hedge transactions, and finance expenses rose to NIS 13.9 million from NIS 8.4 million. The company holds future dollar purchase hedges at exchange rates of NIS 3.09 to NIS 3.47, covering about $53 million in 2026, $46 million in 2027 and $13.5 million in 2028.

The implication is that the dollar has not disappeared from the thesis. It has shifted between lines. When it falls, it can help merchandise cost and gross margin, but it can also create hedge revaluation losses. When it stops helping, the margin test becomes harder. The quarter therefore strengthens the claim that the chain has better pricing, sourcing and logistics control, but it does not settle how much of the improvement is structural and how much still depends on a favorable external backdrop.

Cash Did Not Keep Up With Profit

This is the quarter's yellow flag. Net profit rose 56.7% to NIS 49.9 million, but operating cash flow fell to NIS 53.4 million from NIS 62.1 million. The reason is not heavy bank debt, because bank credit including current maturities was only NIS 29.0 million, down from NIS 43.8 million in the comparable quarter. The reason is the gap between profit and cash in a growing retailer: customers increased, inventory rose slightly, suppliers decreased, and the working-capital line absorbed NIS 26.2 million in total.

The quarter's all-in cash picture looks like this: before the dividend to shareholders, the business still produced cash surplus after CAPEX, lease principal payments and net bank principal repayments. But the NIS 80 million dividend declared in March and paid in April is much larger than that surplus. The distribution is not dangerous by itself, because cash rose to NIS 188.6 million at the end of March, but it clarifies that the strong quarter does not by itself cover expansion, leases and a large dividend.

Leases still matter more than bank debt. Current and non-current lease liabilities together stood at about NIS 761.2 million at the end of March. That is a built-in cost of a store-based retail model, not necessarily an unusual risk. But when the company opens company-operated stores and pays a large dividend, those contracts decide how much flexibility remains if inventory starts absorbing cash again.

The Next Test Is a Proof Year, Not a Breakout Year

2026 started with a good quarter, but the right label is a proof year. The positive side is clear: two company-operated openings, positive same-store sales even on a four-month basis, a gross margin above 2025, and a still comfortable bank-debt position. The less clean side is that the quarter benefited from holiday timing, currency and shipping, while already showing that cash flow can weaken when working capital starts absorbing cash again.

The rest of the year needs to answer three retail-specific questions. First, whether same-store sales remain meaningfully positive without Passover support. Second, whether gross margin stays close to 45% when the dollar and shipping stop helping with the same force. Third, whether the company-operated store rollout can continue without turning inventory, leases and dividends into cash uses that are too large relative to operating cash flow. Until those answers are clearer, the quarter improves the read on operating quality, but it does not yet prove that the 2025 cash step-up has become a permanent base.