Retailors: More Selling Space, Lower Sales per Square Meter
Retailors expanded its store base and selling area, but first-quarter same-store sales and sales per square meter kept falling. The gross-margin improvement was not enough to prevent an operating loss, so the expansion currently looks more like pressure on store economics than clean growth.
The main Fox analysis already marked Retailors as one of the places where 2026 had to deliver execution proof, and the first-quarter report sharpens the problem rather than solving it. Retailors did not merely sell less in the sports segment. It sold less on a larger footprint: store count rose to 284, the selling area used to calculate sales per square meter rose to 117.1 thousand sqm, yet monthly sales per sqm fell to NIS 1,375. This is not just a weak revenue line, because same-store sales including online fell by about 15.6%, and operating profit moved from a small profit to a NIS 17.5 million loss. Nike, Operation Roaring Lion, and a stronger shekel all matter, but they do not clean up the read: the same-store and sales-per-sqm tables neutralize six disrupted operating days, and still show a sharp productivity decline. The gross-margin improvement actually strengthens that conclusion, because the problem is not only purchasing terms but the ability of each store and each square meter to carry the cost layer built around them. The next proof point is simple: if the next quarters do not show stabilization in sales per sqm and same-store sales, more store openings and new territories will look less like growth and more like increased exposure to a model that has not yet returned to work.
Selling Area Is Growing Faster Than Store Demand
In a directly operated retail network, new space works only if that space can justify rent, labor, inventory, depreciation, and working capital. Retailors’ first quarter shows the opposite: the network expanded, but the output of the space declined. At the end of March 2026, the sports segment had 284 directly operated stores, compared with 255 at the end of March 2025. The network added 29 stores in one year, with Nike Europe alone rising from 60 to 84 stores.
The issue is that this expansion did not bring revenue growth. Sports-segment revenue on a 100% basis declined to NIS 496.6 million, from NIS 525.9 million in the comparable quarter, a 5.6% drop. At the same time, sports same-store sales declined from NIS 417.6 million to NIS 347.6 million, while the metric including online sales fell by about 15.6%. Existing stores did not hold the pace, and the broader footprint did not offset the weakness.
The chart is the core evidence. Between Q1 2024 and Q1 2026, the area used to calculate sales per sqm rose by about 66%, while monthly sales per sqm fell from about NIS 2,070 to NIS 1,375. Compared with Q1 2025, area rose by about 22%, while sales per sqm fell by about 23%. This is no longer only a question of new stores ramping up. When area rises and sales per sqm fall at almost the same rate, expansion starts to look like dilution of store productivity.
Gross Margin Improved, But Stores Did Not Carry the Cost Layer
What makes this more than a simple revenue-decline recap is that gross margin improved. The sports segment’s gross margin rose to 50.6%, from 49.3% in the comparable quarter. The improvement came from purchasing-term benefits received in 2025 and spread over the first quarter of 2026, although it was partly offset by a higher average customer discount.
In other words, purchasing terms helped, but not enough. Sports operating profit moved from a NIS 4.1 million profit to a NIS 17.5 million loss, and operating margin moved from 0.8% to a 3.5% loss. Excluding IFRS 16, meaning excluding the accounting lease standard’s effect and without averaging lessor benefits, the operating loss deepened from NIS 9.5 million to NIS 30.5 million.
The company itself links the operating-margin decline to two factors that tie directly to the thesis: lower same-store sales and lower sales per sqm in non-same stores. The second part matters. It means the issue is not limited to the mature store base, but also reaches the layer of stores and areas outside the same-store metric. The claim that the network only needs time to mature still needs proof. It is not a working assumption.
There is a reasonable counterpoint. Nike is undergoing strategic actions, and Retailors expects Nike’s steps to have a positive effect on its growth engines, including expansion in existing territories, entry into new territories, and store optimization. The quarter was also affected by Operation Roaring Lion and by shekel appreciation against several currencies. For now, however, the weight of evidence leans negative: the metrics that isolate store productivity already neutralize six disrupted working days, and profitability deteriorated even after gross margin improved.
Post-Quarter Agreements Add Scale, Not a Fix
Post-reporting-date events do not change store economics by themselves, but they show that Retailors’ expansion requires more management and service infrastructure. On May 7, 2026, Retailors’ general meeting approved updates and extensions to the services, management, Dream Card, and activity-separation agreements between Fox and Retailors. The services and overhead agreement was extended for three years, with allocated labor costs rising from about NIS 410 thousand per month in 2025 to about NIS 504 thousand per month, alongside an increase in the service-expansion mechanism cap from NIS 1 million to NIS 1.5 million per year.
The management agreement also rose modestly, from NIS 375 thousand per quarter to NIS 400 thousand per quarter, while the Dream Card agreement was updated so allocated labor costs increased from about NIS 16 thousand per month to about NIS 25 thousand per month. These amounts do not explain an operating loss of tens of millions of shekels in the sports segment, so they should not be overstated. Their importance is different: they point to an international, omnichannel business that continues to expand, while requiring more headquarters services, loyalty-club infrastructure, quality control, overseas labor support, and internal coordination.
The Foot Locker website agreement points in the same direction. The agreement under which Terminal X operates Retailors’ commerce sites is expected to end on May 31, 2026, after which Retailors will operate the Foot Locker website independently. This could improve brand and data control, but it also moves more execution responsibility into Retailors itself. Against falling same-store sales and sales per sqm, more digital control is a checkpoint, not proof that the physical-store base has recovered.
The Current Read Is Negative, But Still Reversible
Retailors did not lose its story in one quarter, but the first quarter narrows the room for error. The sports segment is still large, gross margin improved, and Nike can again become a tailwind if its actions start to show up in stores. Still, the current evidence points to a business expanding space faster than it is recovering productivity.
The follow-up should be focused: sports same-store sales need to stabilize, sales per sqm need to stop falling, and the operating loss excluding IFRS 16 needs to narrow. If those three signs do not appear, investors will get more stores and more territories, but not necessarily a better profit engine. That is the difference between a network that grows and a network where every added square meter starts to cost more than it sells.
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