Golf in the first quarter: profit improved while same-store sales tell a weaker story

Golf did not publish a quarter that clears the questions left from 2025. It published a quarter that makes them easier to test. The operating line looks good: operating profit rose to NIS 16.9 million, gross margin jumped to 60.4%, and operating cash flow reached NIS 46.4 million. Under that, revenue declined, same-store sales fell 11.8%, and apparel same-store revenue weakened much more sharply than the consolidated headline suggests. The home segment is already proving that it is the main profit engine, and Sabon is now inside the 2026 store base, but same-store sales also declined in home and the company still does not separate Sabon's contribution. That gives only a partial answer to the questions raised in the prior annual coverage: margin and operating cash flow improved, but organic demand and the ability to keep cash after leases, debt repayments and dividends are still not fully proven. The next proof point is no longer only the return to normal activity after Operation Roaring Lion. It is whether the stronger margin can hold once same-store sales again become the cleanest demand test.

This Quarter Tests Demand, Not Only Profit

Golf is a home and apparel retailer with 346 stores at the end of March 2026, seven online sites, and a 1.9 million-member customer club. Economically, this is not just a retail sales story anymore. It is a margin and working-capital machine: the company has to preserve a high gross margin, manage inventory without absorbing cash, and prove that the new Caesarea logistics center and Sabon create more value than operational complexity.

The quarterly backdrop matters because it distorts the first read. Operation Roaring Lion began on February 28, 2026, led to a full shutdown of the Israeli economy, reduced store, online and logistics activity, and effectively ended only after the April ceasefire arrangements. The company returned to full activity afterward, but it still cannot assess the full impact on Israeli retail and on its own results. Some of the quarter's weakness is clearly external. It does not make all the weakness disappear.

The number that stops this from becoming a clean profitability story is same-store sales. Total revenue fell from NIS 230.2 million to NIS 219.5 million, a 4.7% decline. Same-store sales fell from NIS 190.7 million to NIS 168.2 million, an 11.8% decline. That gap means new stores, Sabon, added selling space and activity outside the same-store base soften the consolidated picture. They do not yet prove that core demand recovered.

Margin Beat Sales In The First Quarter

The strongest number in the quarter is gross margin. Despite lower sales, gross profit was almost unchanged, at NIS 132.5 million versus NIS 132.2 million, while gross margin rose from 57.4% to 60.4%. The main driver was a lower dollar exchange rate. That matters: profitability improved primarily through purchasing cost, not through clearly stronger demand or pricing power with customers.

Selling and marketing expenses declined to NIS 106.9 million from NIS 111.1 million, mainly because of cost reductions during the operation. Together with the higher gross margin, that was enough to lift operating profit from NIS 14.7 million to NIS 16.9 million. That is a good result for a quarter with partial shutdowns, but its quality depends on whether the company can keep the margin without currency help and without temporary cost savings caused by forced closures.

Net finance expenses rose to NIS 9.5 million, mainly because lease interest increased. As a result, comprehensive profit was almost flat: NIS 6.4 million versus NIS 6.3 million in the comparable quarter. Excluding IFRS 16, net profit would have been higher, at NIS 7.5 million. But that is precisely why looking only at profit excluding leases is too narrow: stores and the logistics center are part of the economic cost of this retail model.

Home Is Advancing, Apparel Still Pulls Back

Home is the main reason the report does not look weaker. Home revenue rose to NIS 130.2 million, and operating profit jumped to NIS 13.3 million from NIS 8.2 million. The segment's operating margin reached 10.2%, compared with 6.6% in the comparable quarter. It is no longer only larger than apparel in revenue. It is the segment carrying most of the operating improvement.

Still, home also requires caution. Selling space in the segment rose to 32.3 thousand square meters, partly because Sabon stores have operated since the beginning of January 2026, but same-store sales fell from NIS 99.2 million to NIS 92.6 million. Average sales per square meter in same stores fell from NIS 1,206 to NIS 1,125. Home therefore shows better profitability and a larger activity base, but not yet proof that the full core is growing with the same quality.

Apparel is weaker. Revenue fell from NIS 105.2 million to NIS 89.3 million, and operating profit fell from NIS 6.5 million to NIS 3.5 million. Same-store sales in the segment fell from NIS 91.5 million to NIS 75.7 million, and same-store sales per square meter fell from NIS 1,444 to NIS 1,194. This is not only a temporary sales hit. It is a segment that still needs to prove that demand returned, that margin is not being preserved mainly through discounts and timing, and that it is not a volume layer lowering the group's earnings quality.

Sabon remains between promise and proof. It adds 20 stores to home and expands the footprint, but first-quarter disclosure still gives no separate sales, store productivity or profitability. In the Sabon transaction analysis, the test was whether the brand would move from strategic logic to measurable contribution. The current quarter shows that Sabon is already inside the operating base, but it still does not provide the quantitative proof.

Operating Cash Flow Is Strong, The All-In Cash Picture Is Tighter

Operating cash flow reached NIS 46.4 million, compared with NIS 35.6 million in the comparable quarter. That is a good number, especially in a quarter with lower revenue. But the cash source matters. A reduction in inventory contributed NIS 13.5 million, while customers increased by NIS 7.5 million and supplier balances declined by NIS 8.4 million. Operating cash flow therefore again benefited from inventory release, not only from repeatable net profit.

The all-in cash picture asks what remains after actual uses: investments, leases, debt service and dividends. In the first quarter, that picture is less comfortable than operating cash flow. The company generated NIS 46.4 million from operations, but paid NIS 26.5 million of lease principal, NIS 9.7 million of lease interest, a NIS 10 million dividend, repaid NIS 30 million of short-term bank credit, and invested a net NIS 4.5 million. Cash and cash equivalents therefore fell by NIS 37.3 million during the quarter.

The balance sheet still does not point to immediate pressure. Cash and short-term investments totaled NIS 53.5 million versus loans and credit of NIS 24.5 million, leaving net financial surplus of about NIS 29 million. The company also complied with its bank covenants. But after the logistics center and cash analysis, the question is not whether a narrow net financial surplus exists. It is whether the business produces enough cash after leases and dividends without relying on inventory release or lower short-term debt.

The board's May 19, 2026 decision to distribute another NIS 10 million in June raises the proof bar. A quarterly distribution can signal confidence, but it also makes the coming quarters a stricter test: if same-store sales do not recover and cash flow remains dependent on inventory release, the dividend will look less like a recurring policy and more like a use of cash while the operating proof is still partial.

What Will Decide 2026

The first quarter leaves a mixed but useful read: Golf can protect profitability even in a difficult quarter, and home remains the group's economic anchor. The report does not prove a recovery in core demand. Same-store sales declined in both segments, apparel continued to weaken the picture, and Sabon still lacks the disclosure needed to decide whether it adds real profitability or mainly space, inventory and complexity.

The rest of 2026 is a proof year, not an announcement year. For the read to improve, investors need to see a same-store sales rebound after the security disruption, more quantitative contribution from Sabon and wholesale, evidence that logistics automation is lowering actual costs, and cash flow that covers leases and dividends without another inventory release. The weaker read would be another quarter in which profitability is preserved mainly by currency, temporary cost savings or lower inventory while customers in same stores are still buying less. That is the difference between a retailer protecting profit in a difficult quarter and a company whose logistics upgrade and home expansion truly change business quality.