Holmes Place in the First Quarter: More Members, but Leases and Dividends Still Absorb the Cash Surplus

Holmes Place opened 2026 with a quarter that answers part of the concern left from 2025, but not all of it. Average members rose by about 10%, gross profit jumped by about 19.5%, and the Low Cost Premium segment already looks better than it did at the end of 2025. Still, this is not clean growth: average monthly revenue per member fell, part of the margin improvement came from the consolidation of Revo and cost cuts during the club-closure period, and operating cash flow left almost no surplus after lease-principal payments, CAPEX, and the dividend paid during the quarter. Bank debt and covenants look very comfortable, so this is not a near-term survival or financing problem. The issue is that for the 2026 growth story to become more convincing, the company must show that the new clubs, Revo, and Icon add profit and cash without leases and dividends absorbing most of the available cash. The next few quarters will be less about reported net income and more about whether Beer Yaakov, Nahariya, Even Yehuda, and new Revo studios turn presales and openings into stable revenue, while average revenue per member stops eroding.

The Company Is Growing, but Revenue per Member Fell

The first quarter gives an initial answer to the question left open after the previous annual analysis: will 2026 be another year of expansion only, or a year in which expansion starts to look better in profitability too. Operationally, the first answer is positive. At the end of March 2026 the company operated 81 health and fitness clubs, of which 32 were in the Holmes Place segment and 49 in the Low Cost Premium segment, alongside 20 fitness facilities in external institutions and corporations. Average members in the quarter rose to 215,943, from 196,223 in the comparable quarter, and period-end members reached 219,171.

The quality of that growth is less clear than the quantity. Club operating revenue rose to NIS 148.6 million, up only 3.9%, while average members increased by about 10.0%. That gap flows directly into average monthly revenue per member, which fell to NIS 229.41 from NIS 242.91 in the comparable quarter. In the Holmes Place segment the decline was sharper, from NIS 305.18 to NIS 294.91, while the Low Cost Premium segment posted a slight increase from NIS 162.90 to NIS 164.43.

The company gives two explanations that matter for interpretation. The first is Operation Shaagat HaAri: for five days the clubs did not operate at all, and then returned under occupancy restrictions. During those days no new memberships were sold, no renewals were made, and ancillary revenues from personal training and pool lessons were hit. The company estimates the quarterly impact on ancillary revenue at about NIS 1.2 million. The second is mix: Family clubs lower average revenue per club member, while still contributing meaningfully to the Holmes Place segment and to the group as a whole.

So the quarter does not say demand weakened. Average monthly churn fell to 4.6% from 4.9%, and in the Low Cost Premium segment it fell to 5.5% from 6.2%. But it does say that member growth alone is not enough. If additional members come with lower revenue per member, the improvement must come through costs, club utilization, service mix, and a faster ramp of new clubs.

Revo and Icon Improve the Segment, but Disclosure Blends Two Stories

The strongest operating finding in the quarter is that the Low Cost Premium segment no longer looks like the weak point highlighted in the Icon analysis. Segment revenue rose to NIS 48.2 million from NIS 39.8 million, and segment profit before depreciation and amortization rose to NIS 15.9 million from NIS 12.4 million. The segment profit margin improved to 33.0% from 31.1%. That matters because in 2025 Icon increased volume while margins eroded.

The problem is that this improvement does not fully close the Icon question. Starting January 1, 2026 the company includes Revo Fitness in the Low Cost Premium segment, and Revo is described as a Pilates-studio chain with high gross profitability. At the same time, selling, general, and administrative expenses increased to NIS 14.8 million from NIS 12.3 million, partly because of Revo’s consolidation and partly because of higher advertising and marketing expenses in the Low Cost Premium segment amid stronger competition.

The correct conclusion is therefore not that Icon has already become a more mature and more profitable chain. The narrower but still positive conclusion is that the new combined segment, Icon plus Revo, looks stronger in the first quarter. To close the question left open in 2025, the rest of the year must show whether the improvement holds when Revo’s contribution is no longer a new consolidation effect and when Low Cost marketing costs continue to face competitive pressure.

The Holmes Place segment also delivered a non-trivial improvement. Revenue fell slightly to NIS 104.6 million, but segment profit before depreciation and amortization rose to NIS 27.2 million. Part of that reflects actions taken during the closure period, including unpaid leave for most employees, approaches to landlords to reduce rent, and operating-cost cuts. Those actions show managerial flexibility, but not every shekel saved in such a period should be treated as a recurring quarterly base.

Leases Still Decide How Much Cash Is Left

On net income, the quarter looks strong: profit for the period rose to NIS 10.7 million from NIS 8.0 million, and profit attributable to parent shareholders rose to NIS 10.3 million. Operating profit before other expenses also rose to NIS 27.5 million from NIS 25.0 million. But in a leased fitness-club network, profit is not enough. The relevant question is how much cash remains after leases, investments, and distributions.

This is not a normalized maintenance-cash calculation. It is a check of cash flexibility after the quarter’s actual cash uses: operating cash flow, less lease-principal repayments, less purchases of property and equipment, and less the dividend paid. Operating cash flow fell to NIS 41.7 million from NIS 45.5 million in the comparable quarter. After lease-principal repayments of NIS 23.0 million and purchases of property and equipment of NIS 16.7 million, only about NIS 2.0 million was left before dividends. After the NIS 11.0 million cash dividend paid during the quarter, the quarter was already at a cash deficit of about NIS 9.0 million before net bank-debt movement.

Bank-debt movement almost balanced the cash account: the company drew NIS 12.0 million of loans and repaid NIS 3.1 million, so cash and cash equivalents fell by only NIS 0.2 million. That is not a distress signal, but it clarifies the shareholder layer. In a quarter in which CAPEX fell sharply from the comparable period, cash surplus before dividends was still small. In addition, the company declared another NIS 12.0 million dividend at the end of March, paid after the balance-sheet date on May 10, 2026.

At the bank-financing layer the picture is much more comfortable. Total loan principal stood at NIS 93.3 million, cash and cash equivalents at NIS 20.6 million, and net bank debt at about NIS 72.7 million. Net debt to EBITDA was only 0.7, against a covenant ceiling of 3. Non-GAAP equity was about NIS 293.5 million against a NIS 50 million requirement, and the equity-to-balance-sheet ratio was about 54% against a 25% requirement. The company also has tens of millions of shekels of unused credit lines.

That gap between the two layers is the key point. The bank sees a company with low leverage and distant covenants. The shareholder sees a company that still has to fund openings, leases, and dividends. The decline in finance expenses excluding IFRS 16 has already arrived, from NIS 2.4 million to NIS 1.5 million, but reported finance expenses barely declined because of lease accounting. The bank-debt relief reduces risk, but it does not replace the need to see a wider cash surplus from the business itself.

The 2026 Openings Are Moving From Target to Execution

The company has already begun turning its 2026 openings plan into nearer-term milestones. In April 2026, the Icon Agamim Netanya club opened. In May 2026, presales began at a new Icon club in northern Nahariya, expected to open in June 2026, and at a new Holmes Place Family club in Beer Yaakov, also expected to open in June 2026. The company expects to open a total of two to three additional Icon clubs in 2026, two Family clubs in Beer Yaakov and Even Yehuda, and another three to four Revo Pilates studios.

That is progress relative to the Family pipeline question raised in the previous pipeline analysis: Beer Yaakov has moved into presale and is no longer just a name on a future project list. But the quarter also sharpens the fact that the near-term 2026 growth leg is made of several formats together, not Family alone. Icon continues to open clubs, Revo is expected to add studios, and Family still has to prove that the larger-format club adds not only future revenue but also cash after the ramp period.

The legal risk is not the center of the quarter, but it touches the economics of a subscription business. In January and February 2026, two motions to certify class actions were filed against the company: one around cancellation fees or benefit refunds, and the other around indexation charges. In each motion, the class claim amount cannot be estimated by the applicants but is alleged to exceed NIS 2.5 million. The company cannot yet assess the likelihood of certification. At this stage there is no number that changes the thesis, but it is a reminder that membership revenue, cancellations, and indexation are not only operating metrics. They are consumer terms that can reach court.

The company expects Operation Shaagat HaAri not to materially affect 2026 as a whole, assuming there are no additional closure days or partial-operation periods. It also says that after the reporting period, clubs are operating fully, frozen membership levels are unchanged from before the fighting, and the pace of new sales is similar to the pre-war pace. That matters: the quarter was hit by a point-in-time disruption, but it does not currently point to structural demand damage. What is still missing is proof that the company can recover ancillary revenue and average revenue per member without giving back the churn improvement.

Conclusions

The first quarter improves Holmes Place’s position, but it does not fully change what needs to be tested in 2026. On the positive side, clubs continue to attract members, churn declined, the Low Cost Premium segment looks more profitable, and bank debt is far from being the bottleneck. On the negative side, average revenue per member fell, part of the margin improvement came from Revo and closure-period cost cuts, and cash flow left almost no surplus after leases, CAPEX, and the dividend paid.

The current conclusion is that the company entered 2026 in a better operating position than it seemed to have at the end of 2025, but still without enough cash breadth to make the growth story simple. The strongest counter-thesis is that the quarter was affected by a short security event, the new clubs are still early in their ramp, covenants are distant, and lower bank debt will already reduce finance expenses in the coming quarters. For that argument to strengthen, the next four quarters need to show three things: average revenue per member stabilizing, the Low Cost Premium segment continuing to improve profit even when disclosure still blends Revo and Icon, and cash remaining positive after lease-principal repayments, CAPEX, and dividends. The positive interpretation would weaken if revenue per member keeps falling, openings require more credit before contributing cash, or distributions continue to run ahead of the surplus left after all actual cash uses.