Willi-Food in the First Quarter: Sales Rose, but Selling Expenses Absorbed the Improvement
Willi-Food opened 2026 with higher sales and a better gross margin, but operating profit barely moved because selling expenses jumped 22%. Cash flow looked much stronger than in the comparable quarter, though it also relied on working-capital release and securities sales while the new logistics center still waits for the fourth quarter.
Willi-Food International opened 2026 with a quarter that looks strong at the revenue line but less clean at the operating-profit line. Sales rose 8.3% and gross margin improved to 31.2%, but selling expenses jumped 22% and absorbed almost all of the improvement before it reached operating profit. The quarter therefore does not yet prove that the margin improvement seen in 2025 has turned into sustained operating leverage. It does close another open checkpoint: operating cash flow recovered to NIS 22.4 million, mainly because inventory stopped consuming cash the way it did in the comparable quarter. Still, the current read depends on three mechanisms that one quarter does not settle: how much the securities portfolio continues to support earnings, whether working-capital improvement can hold through more quarters of growth, and whether the new logistics center starts operating in the fourth quarter of 2026 without making the operating investment look more expensive than it does today. The present conclusion is more positive on cash flow than on operating profitability, so the next proof point is not simply another quarter of sales growth, but growth that reaches both operating profit and cash without heavy help from the financial portfolio.
Sales Rose, Operating Profit Did Not
The company is an importer and marketer of food products, so its economics move through four simple drivers: product availability, foreign-currency purchase costs, selling power with chains and customers, and inventory management. In the first quarter of 2026, the first two worked in the company’s favor. Sales were NIS 156.9 million, compared with NIS 144.8 million in the comparable quarter, and the company attributed the growth to better product availability and growing demand for its products. Gross margin improved to 31.2% from 30.8%, helped by better purchase prices, NIS appreciation against the U.S. dollar and the euro, and a focus on a more profitable product portfolio.
The rest of the income statement was less sharp. Selling expenses increased to NIS 20.9 million from NIS 17.1 million and rose from 11.8% of sales to 13.3%. The main explanation was higher advertising. That may support demand later in the year, but in this quarter it already consumed most of the gross-profit improvement. Operating profit was NIS 20.0 million, almost unchanged from the comparable quarter, while operating margin fell from about 13.8% to about 12.8%.
That gap moves the discussion away from headline growth and toward growth quality. If the advertising increase was a temporary push, the next quarters may show that the company built demand while protecting a strong gross margin. If this becomes the new spending level, revenue growth will be less impressive for shareholders because each additional shekel of sales will leave less money on the way to operating profit.
A previous annual analysis of the company left one clear checkpoint: the food operation improved, but a large part of profit still came from the financial portfolio. The first quarter does not remove that issue. Net financial income was NIS 5.7 million, compared with NIS 5.2 million in the comparable quarter, and consisted mainly of NIS 2.9 million from fair-value revaluation of the securities portfolio and NIS 2.8 million from interest and dividend income.
In quarterly terms, financial income was about 22% of pre-tax income. That is not inherently problematic for a company with excess cash and a large securities portfolio, but it changes the quality of earnings. Operating profit did not advance, and net profit rose only 3% to NIS 20.1 million. The quarter therefore still does not show that the operating business alone has moved up a level. It shows that the combination of a stable food operation, a meaningful financial portfolio and a strong balance sheet continues to support the bottom line.
The skeptical read is not that the financial portfolio is noise that should be ignored. On the contrary, for this company it is a real part of financial flexibility. The issue is that when the market tries to assess business quality, it has to separate profit from selling food from profit that comes from fair-value revaluation, interest and dividends. In the first quarter of 2026, that separation is still necessary.
Cash Flow Improved, but Working Capital Did Most of the Work
The more positive point in the quarter is cash flow. Operating cash flow was NIS 22.4 million, compared with only NIS 0.3 million in the comparable quarter. That is a sharp improvement, but it did not come only from higher profit. The comparable quarter in 2025 was consumed by a NIS 24.9 million inventory build. In the current quarter, inventory fell by NIS 1.8 million, and the inventory balance at the end of March 2026 was NIS 92.3 million, compared with NIS 94.1 million at the end of 2025 and NIS 123.2 million at the end of March 2025.
That matters for a food importer. Better product availability can support sales, but if it requires heavy inventory, profit does not necessarily become cash. In this quarter, the company grew without stretching inventory, which is a positive sign. On the other hand, cash flow also benefited from liability timing: current liabilities rose to NIS 78.2 million from NIS 47.8 million at the end of 2025, mainly because of higher suppliers, other payables and accrued expenses, and the quarter also included NIS 4.1 million of short-term bank credit.
| Cash item | First quarter 2026 | First quarter 2025 | Meaning |
|---|---|---|---|
| Operating cash flow | NIS 22.4 million | NIS 0.3 million | Sharp improvement, with a large working-capital contribution |
| Inventory movement | NIS 1.8 million decrease | NIS 24.9 million increase | The current quarter did not consume cash through inventory |
| Fixed assets, construction asset and lease payments | NIS 11.3 million | NIS 11.9 million | Core investments still require cash |
| Net sale of securities | NIS 6.1 million | NIS 5.1 million | The financial portfolio remains a liquidity source |
| Short-term bank credit | NIS 4.1 million | 0 | A small but new funding source in the quarter |
Using an all-in cash flexibility frame, meaning cash after purchases of fixed assets, investment in the asset under construction and lease payments, the quarter still left about NIS 11.1 million before securities sales and short-term credit. That is much better than the comparable quarter, where the same frame was negative by about NIS 11.6 million. Still, the conclusion is not that the cash question is settled. The conclusion is that this quarter was cleaner on working capital, and the next check is whether that holds as sales and logistics-center investment continue.
The Logistics Center Still Pushes the Operating Proof Forward
The new logistics center remains the most important operating trigger for the coming years. The previous logistics-center analysis of Willi-Food concluded that the project makes operational sense, but that a large investment has to justify itself not only through savings on external warehouses, but also through utilization, chilled and frozen categories, and distribution-cost improvement. The first quarter did not provide that proof yet, and it was not expected to.
The company continues to advance construction of the new logistics center, but completion and commencement of operations are now expected during the fourth quarter of 2026, after delays attributed to the ongoing war situation. The balance sheet already shows the capital going into the project and fixed assets: net property, plant and equipment rose to NIS 147.4 million, compared with NIS 138.2 million at the end of 2025 and NIS 119.8 million at the end of March 2025. Investment cash flow in the quarter included NIS 9.7 million for property, plant and equipment under construction and another NIS 1.0 million for property, plant and equipment.
That means 2026 still looks like a transition year for the project. The company is already investing capital, but the operating savings and the expansion into chilled and frozen categories are still not in the results. Any further delay, cost overrun or weak disclosure on expected benefits would weigh on the story. Once the logistics center starts operating, the test becomes simpler: whether distribution and storage costs decline as a percentage of sales, and whether relevant-category sales grow without eroding margin.
Conclusion
The first quarter of Willi-Food International is better on cash flow than on profitability. The company is growing, improving gross margin and keeping a strong balance sheet, but the rise in selling expenses currently prevents sales growth from reaching operating profit. Financial income is still too meaningful to ignore, and the logistics center is still in the phase where it consumes capital before proving savings or profitable growth.
The current conclusion is that the quarter strengthens the company’s stability, but does not settle the earnings-quality question. The next two quarters need to show whether advertising was a temporary investment, whether working capital continues to support cash flow, and whether the logistics-center timetable remains stable into the fourth quarter. The strongest counter-thesis is that a balance sheet with NIS 274.1 million in cash and current securities gives the company enough time to absorb advertising, logistics-center investment and financial volatility. That is true, but time alone is not enough. For the read to improve, Willi-Food International needs to show that growth is reaching operating profit and recurring cash flow, not only that the balance sheet can fund another seemingly strong quarter.
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