Multi Retail in the First Quarter: Profitability Returned, Working Capital Absorbed the Cash
Multi Retail opened 2026 with a return to profit and improvement across all three segments, including early proof that Home Design and Ace on-line are working better after the 2025 cleanup. But the quarter also brought the cash question back to the center: operating cash flow was negative, and net financial assets almost disappeared within three months.
Multi Retail delivered in the first quarter the proof that was missing after the 2025 report: the store cleanup, Home Design improvement, and Ace on-line shift toward franchise and marketplace activity are already reaching profitability. Revenue rose 5.5%, operating profit jumped to NIS 7.8 million, and net profit moved to NIS 1.8 million, compared with a NIS 5.0 million loss in the corresponding quarter. EBITDA excluding IFRS 16 also moved from minus NIS 0.2 million to plus NIS 6.5 million. Still, the quarter does not close the debate over quality: operating cash flow was negative at NIS 8.5 million, and all-in cash flexibility after CAPEX, lease repayments, and bank debt repayment translated into a NIS 31.7 million decline in cash. Net financial assets excluding leases fell from NIS 29.6 million at the end of 2025 to only NIS 0.2 million at the end of March 2026. The current read is better operationally, but still not clean on cash: the stores can earn money; now the company has to show that profit is not absorbed by inventory, customers, and leases.
The Stores Gave the First Proof, but the Comparison Base Is Messy
Multi Retail is a retailer of home, automotive, and furniture products, but its economics are not measured only by sales. Home and Auto Improvement needs more profit from each square meter. Home Design needs to prove that smaller stores, closure of weak branches, and franchising can replace the heavier network of prior years. At Ace on-line, reported revenue is already a weaker reflection of sales volume because more activity flows through franchisees and marketplace sellers.
The first quarter benefited from the earlier timing of Passover, but was also hurt by Operation Lion's Roar, which started on February 28, 2026 and led to weaker customer traffic, closure of Home Design stores in the first week, and irregular activity until the April ceasefires. The quarter is not a clean demand base. The improvement appeared in all three segments, including where reported revenue looks weak.
| Activity Engine | What Happened in the First Quarter | Economic Meaning |
|---|---|---|
| Home and Auto Improvement | Revenue of NIS 117.8 million, up 10.3%; EBITDA excluding IFRS 16 of NIS 4.0 million versus NIS 0.4 million | The core segment is producing clearer operating profit, while same-store sales rose 16.0% |
| Home Design | Revenue fell to NIS 32.0 million, but EBITDA excluding IFRS 16 moved to NIS 0.8 million versus a NIS 1.4 million loss | Closure of weak space and a better gross margin matter more than the lower reported revenue line |
| Ace on-line | Revenue fell to NIS 24.8 million, but sales volume rose 5.4% and segment profit rose to NIS 3.6 million | The move toward franchisees and marketplace sellers continues to reduce reported revenue relative to sales volume, while improving profitability |
This continues the checkpoints raised in the previous annual analysis: 2025 repaired the balance sheet, but 2026 had to show that the stores themselves justify the story. In the first quarter, the company passed the operational part of that test. It has not yet passed the cash part.
Home Design and Ace On-Line Already Look Different From Their Reported Revenue
The interesting point in Home Design is that reported revenue fell 3.3%, but that is almost the least important figure. Excluding closed stores, segment revenue rose from NIS 27.4 million to NIS 32.0 million. The gross margin rose to 51.3% from 47.8%, and segment profit moved from a NIS 1.4 million loss to a NIS 0.8 million profit. After the five store closures in 2025, the company did not only cut weak activity; it also showed a more profitable active base.
Still, this is only a first step. Same-store sales in Home Design include e-commerce sites, and the online share of segment sales rose to 17.7% from 11.7%. The improvement is not only a physical-store story. In May, two franchised stores opened in Kafr Yasif and Kiryat Shmona, and agreements were signed for stores in Tel Aviv, Beit Shemesh, Arad, and Ashdod. The direction is clear: less reliance on space operated fully by the company, more testing of a franchise model. Disclosure is still not sufficient to calculate profit retained from each franchised store, so the next proof point is contribution to profit and cash, not branch count.
At Ace on-line, the contradiction is even sharper. Revenue fell 3.4%, but sales volume rose to NIS 40.1 million from NIS 38.1 million, and the marketplace share of activity rose to 47.9% from 41.0%. The gross margin jumped to 52.9% from 47.3%, and segment profit rose to NIS 3.6 million from NIS 2.5 million. Focusing only on revenue misses the activity-model shift: more volume is moving through a model in which the company does not record the full sale as revenue, but can still retain better profitability.
The yellow flag inside Ace on-line is the link to physical stores. 58.0% of segment customers, excluding marketplace transactions, chose self-pickup from physical Home and Auto Improvement stores, compared with 54.9% in the corresponding quarter. But only 26.3% of those buyers purchased additional items at pickup, compared with 27.7% last year. The decline is not dramatic, but it touches the value of the site for the stores directly.
Profit Returned Faster Than Cash
The main problem in the quarter is not profitability, but cash timing. Net profit was NIS 1.8 million, and non-cash adjustments added NIS 22.2 million. Then working capital arrived: an NIS 18.8 million increase in customers, an NIS 4.3 million increase in inventory, a NIS 7.6 million decrease in suppliers and service providers, and another NIS 0.7 million decrease in payables. The result was a NIS 32.6 million cash drag and negative operating cash flow of NIS 8.5 million.
The right cash frame here is all-in cash flexibility after actual cash uses: operating cash flow after investments, lease repayments, and bank debt repayment. In the first quarter, operating cash flow was negative at NIS 8.5 million, CAPEX was NIS 3.0 million, lease liability repayment was NIS 17.9 million, and bank loan repayment was NIS 2.3 million. Cash fell by NIS 31.7 million.
This does not break the story. Retail can consume cash early in the year because of seasonality, customer timing, credit-card balances, and inventory before sales. But it moves the discussion away from the year-end 2025 balance sheet and back to the quality of 2026 cash flow. Net financial assets excluding leases fell from NIS 29.6 million at year-end to NIS 0.2 million at the end of March. The company is far from financing distress, but leases still require actual cash, and working capital can erase a large part of the year-end improvement in a single quarter.
Franchising Reduces Risk, but Cash Contribution Still Has to Show Up
The sequence of store changes shows active network management. In January, the company decided to close Urban Beer Sheva and move it into Beitili Beer Sheva. In February, it decided to close Beitili Mavkiim and move it into a designated area inside the Ace store in the same complex. Beitili Kiryat Gat opened, Beitili Karmiel closed, a franchised Urban store opened in Shilat, and in May additional franchised stores opened and new agreements were signed.
This is better than merely opening more stores. It reduces the risk of returning to large spaces, heavy leases, and inventory that does not turn quickly enough. But it also changes the measurement method. If more growth comes from franchisees, store count matters less than gross profit, fees, expenses the company still bears, and cash contribution. The first quarter provides a positive sign because Home Design moved to segment profitability despite lower reported revenue. What is missing is a sequence of quarters showing that franchising and the smaller format work after launch.
The same applies to Home and Auto Improvement, the largest engine. It generated sales volume of NIS 150.7 million, up 13.8%, and same-store sales of NIS 148.7 million, up 16.0%. But Passover timing and the war make the quarter an uneven comparison base. If sales volume remains high and the gross margin stays around 50%, it will support a more stable recovery. If not, part of the first-quarter improvement will look like timing rather than deeper change.
The Next Quarters Need to Show That Profit Also Reaches Cash
Multi Retail exits the first quarter with a mixed conclusion, but a better one than at the start of the year. Operational improvement is broad: Home and Auto Improvement is strong, Home Design moved to profitability after the network cleanup, and Ace on-line continues to prove that sales volume and profit matter more than reported revenue. Operating cash flow still did not support the profit, and the cash decline showed that the company cannot rely only on the comfortable year-end 2025 balance sheet.
The market may first react to positive net profit and broad segment improvement, but the more important proof point over the next 2-4 quarters will be working-capital reversal. If customers, inventory, and suppliers return to supporting cash, the first quarter will look like a seasonal step in an improving year. If they continue to absorb cash, the operating story will remain better, but financial flexibility will be much narrower than it looked after the 2025 report. This is no longer a company that needs to prove it can return to profit. It needs to prove that the new profit can hold after the cash register pays for the stores, leases, and expansion.
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