Fox in the First Quarter: Sports Erodes Profitability, the Bond Raise Buys Time

Fox opened 2026 with a quarter that explains why the latest bond issue mattered, but also why it is not enough to change the business read. Consolidated revenue rose 5.5% to NIS 1.56 billion and gross margin stayed stable at 55.6%, but operating profit fell 36.9% to NIS 32.7 million and the group moved to a net loss of NIS 33.8 million. The problem is not a broad collapse in demand: Israeli fashion and home and Terminal X improved. The pressure sits mainly in Retailors, where the sports segment moved to an operating loss, same-store sales including online fell 15.6%, and monthly sales per square meter dropped to NIS 1,375 from NIS 1,789 in the comparable quarter. Cash flow from operations improved to NIS 43 million and inventory barely grew versus the end of 2025, so there is an early sign that working-capital pressure is easing. Still, after investments, leases, debt repayments, and the shift into longer-term debt, the quarter leaves Fox in a proof year: whether sports returns to profit, whether inventory comes down without heavy discounting, and whether the bond proceeds extend duration rather than funding another investment layer before the core recovers.

Company Context

Fox is now a broad retail group, not only a fashion chain. It operates fashion and home brands in Israel and abroad, Laline, Retailors in sports, Terminal X online, and additional activities such as Shilav, Flying Tiger, Minene, Sunglass and Jumbo. The engines differ: Israeli fashion depends on mall traffic, discounts and FX, sports depends on store economics and the Nike and Foot Locker brands, and Terminal X depends on transaction volume, brand mix and logistics.

The group trades at a market cap of roughly NIS 4.16 billion, with global operations, a large loyalty-card base, and more than 1,000 stores. In the previous annual analysis, the open issue was cash quality: high inventory, weakness in sports, and a move into net debt. The first quarter gives a partial answer. Inventory is no longer jumping the way it did in 2025, but sports has not stabilized. That is the difference between balance-sheet improvement and business improvement.

The Quarter Splits the Group in Two

The simple headline would have been 5.5% revenue growth. That is not the important read. In the first quarter, group sales grew, but selling and marketing expenses rose faster, from NIS 743.4 million to NIS 810.7 million, and increased to 52.0% of sales from 50.3%. Gross margin stayed stable, so the erosion moved through the operating layer: stores, depreciation, logistics and leases.

Israel and Terminal X Worked, Sports Erased the Progress

Israeli fashion and home was the healthier part of the quarter. Revenue rose 9.2% to NIS 537.0 million, and operating profit increased to NIS 31.1 million from NIS 21.0 million. Excluding IFRS 16, which removes the lease-accounting effect from the income statement, operating profit rose to NIS 17.3 million from NIS 8.2 million. This was not a perfectly clean improvement, because gross margin fell to 59.0% from 60.4% due to deeper discounts, but the activity still converted sales into profit.

Terminal X added a different layer of support. Revenue rose 23.0% to NIS 138.9 million, operating profit rose to NIS 11.1 million, and operating margin reached 8.0%. Part of the growth came from first-time consolidation of companies acquired in the second half of 2025, so this is not a full organic-growth proof. Still, it shows that online and the added brands can contribute profit, not only volume.

Sports tells the opposite story. Revenue fell 5.6% to NIS 496.6 million, and operating profit moved from a NIS 4.1 million profit to a NIS 17.5 million loss. Excluding IFRS 16, the operating loss deepened to NIS 30.5 million, compared with a NIS 9.5 million loss in the comparable quarter. This is no longer only a lease-accounting distortion. It is pressure on store economics.

The store data reinforces the operating picture. In sports, same-store sales totaled NIS 347.6 million versus NIS 417.6 million, and same-store sales including online fell 15.6%. Monthly sales per square meter fell to NIS 1,375 from NIS 1,789, while the selling area used for the square-meter calculation rose to 117.1 thousand square meters from 95.7 thousand square meters. The chain carries more space, but each square meter sells less. That is the bottleneck that has to close before the market can treat Retailors expansion as a growth engine rather than a cost layer.

Cash Improved, but the Full Cash Load Is Still Heavy

The positive part of the quarter is that cash pressure did not worsen at the same pace as profit. Cash flow from operations was NIS 43.0 million, compared with a small NIS 0.3 million use of cash in the comparable quarter. The improvement came despite a net loss, because non-cash adjustments, mainly depreciation and interest expenses, were high, and the working-capital outflow was smaller: NIS 93.5 million versus NIS 163.9 million in the comparable quarter.

Inventory remains the key line to watch. Consolidated inventory stood at NIS 1.626 billion, almost unchanged from NIS 1.612 billion at the end of 2025, but still well above NIS 1.430 billion at the end of March 2025. In the quarter itself, inventory absorbed NIS 20.9 million of cash flow, versus NIS 158.8 million in the comparable quarter. This does not prove the problem is solved, but it is a clear slowdown in the pace at which inventory consumes cash.

All-in cash flexibility after actual uses of cash is still narrower than cash flow from operations alone suggests. Against NIS 43 million from operations, Fox had NIS 88.4 million of property, equipment, investment property, intangible-asset and business-combination purchases, NIS 150.0 million of lease principal repayment, NIS 266.3 million of long-term loan repayment, and NIS 34.6 million of dividends to non-controlling interests. On the other side, the group received NIS 596.4 million of long-term loans. The quarter therefore looks less like a business producing surplus cash and more like a business beginning to release working capital while replacing and extending funding sources.

After the balance-sheet date came the major financing move: Fox issued Series B bonds and raised NIS 550.8 million net, at a 4.38% coupon and 4.60% effective interest rate. Principal will be repaid in ten equal annual installments from 2027 through 2036, and the covenants look far from the edge relative to March figures: majority-shareholders' equity must stay above NIS 200 million, equity to assets excluding IFRS 16 must not fall below 17%, and net financial debt to adjusted EBITDA must not exceed 6. In other words, the bond issue reduces immediate pressure and extends duration. It does not change the fact that the business has to return to operating profit without leaning on more debt.

Investments outside the retail core do not remove the yellow flag either. The Beit Shemesh logistics-center project has credit facilities of roughly NIS 602.2 million for the partnership, and by the end of March NIS 233.1 million had been drawn, including NIS 77.7 million as Fox's share. This can improve logistics over time, but it still requires execution, collateral and timetable discipline before the savings reach the income statement. The Dyson distribution agreement opens a new activity in Israel without minimum purchase or minimum store commitments. The option exists, but the contribution is still unproven.

Conclusions

The first quarter moves Fox from the question of whether it has financing access to the harder question: whether the retail activity, especially sports, can justify the stores, leases and investments already built. There is a real improvement in working capital and liquidity, and the Series B bond gives the company valuable time. But that time has to be filled by two clear things: halting the decline in Retailors same-store sales, and lowering inventory without another hit to gross margin.

The fair counter-thesis is that the first quarter was hit by the security-related disruption cited by the company, timing, and the global Nike effect on Retailors' Nike activity, while Israel and Terminal X are showing positive signs. That is a reasonable argument, but it needs evidence in the next reports. The market may respond positively to further inventory reduction and a recovery in sports sales per square meter, while another quarter in which the bond improves the balance sheet but sports remains loss-making would strengthen the conclusion that the problem is not only temporary. That makes 2026 look less like a breakout year and more like a proof year: not proving that Fox can raise capital, but proving that the capital it received is enough until stores, inventory and cash flow move back in the same direction.