Yohananof in the First Quarter: NIS 96 Million From Operations Did Not Cover Land and Store Investment

Yohananof gave investors a clear proof point in the first quarter: the retail operation still works. Sales excluding the accounting effect of consignment arrangements rose 15.6%, same-store sales rose 14.9%, and profit for the period climbed to NIS 60.3 million. This was not growth driven by new selling area during the quarter, because selling area was unchanged from the end of 2025. It came mainly from existing stores, Passover timing, higher demand during the fighting with Iran and Hezbollah, and broad price cuts that helped expand market share. The quarter therefore does not close the question raised in the previous annual analysis. It changes its weight: weak demand is not the issue, but how much cash remains after the company funds a pipeline of 27 stores, land, leases, and shareholder distributions. Operating cash flow of NIS 96.2 million looks strong, yet cash fell by NIS 49.0 million in the quarter after investing and financing cash uses. The current read is better at the sales and operating-profit layer, and more demanding at the capital-allocation layer. For 2026 to read as a year of progress rather than a year of heavier capital burden, the company needs to show that same-store sales hold after the unusual Passover timing, and that land and new stores begin to return cash before they require another funding layer.

Same Stores Carried The Quarter

The company is a food and adjacent-products retailer with 46 active stores in Israel and net selling area of about 98 thousand square meters. Its economic model depends on high turnover, supplier purchasing power, negative working capital, long-term leases, and a store pipeline that expands physical reach. Alongside that, the company has built a material real-estate layer: land and commercial centers that are intended to support store activity and create future optional value.

For a food retailer, high inventory before holidays, heavy supplier credit, and large leases are part of the model. The unusual point this quarter is the combination of sharp same-store sales growth and cash uses that exceeded operating cash flow. That brings the company back to the 2025 question: is the expansion comfortably funded by the retail operation, or are real estate and new store development absorbing more capital than the retail core releases in a quarter?

The most important operating number in the quarter is same-store sales. The company reached NIS 1.33 billion in food-retail same-store sales, up 14.9% from the comparable quarter. Same-store sales per square meter rose to NIS 14.6 thousand, also up 14.9%. That is a strong number for a food retailer, especially when selling area did not grow from year-end 2025.

The growth source is less clean than the headline number. The company attributes the increase to Passover timing, market-share gains, broad price cuts and deeper promotions, higher consumption following Operation Rising Lion, and expansion in categories such as electrical products, alcoholic beverages, and textile. That list says two things at once: there is demand and the company can push more volume through the existing store base, but part of the growth came from timing and price.

This matters because the first quarter can look too strong if it is read only through sales velocity. The store-opening plan is still ahead: 27 new stores are in the pipeline, four are planned for 2026, and several later stores are tied to land owned fully or partially by the company. The growth that already appeared in the report came mainly from the existing base. The next growth wave will require more investment, leases, planning, and execution.

Operating Profit Improved Before Gross Margin Recovered

Gross profit rose to NIS 279.8 million, but gross margin on sales excluding the consignment effect fell to 20.1% from 20.7%. The company explains the decline mainly by the deconsolidation of Zol Stock, which had a higher gross margin. That explains part of the decline, but it does not remove the need to test the effect of price cuts and promotions through the rest of the year.

The positive part appears below gross profit. Operating profit before other income rose 31.6% to NIS 97.6 million, and the margin rose to 7.0% of sales from 6.1%. Selling and marketing expenses rose only modestly in shekel terms despite the jump in turnover, so their share of sales declined. This was a quarter in which higher sales volume offset a lower gross margin.

The company also presents the effect of IFRS 16, the leases standard, on results. Excluding the standard, profit for the period would have been higher, NIS 65.7 million compared with NIS 60.3 million in the financial statements, because the standard adds depreciation and finance expenses instead of current rent expense. For the thesis, that number is not the main point. In a retailer expanding selling area, leases are not only accounting. They are a real cash use over time, which is why operating profit has to be connected to cash flow and lease payments.

Operating Cash Flow Did Not Match The Investment Pace

Operating cash flow was NIS 96.2 million, up from NIS 68.1 million in the comparable quarter. That is a good number. It was also supported by a working-capital structure typical of food retail: an NIS 88.6 million increase in suppliers and service providers offset part of an NIS 82.2 million increase in receivables and an NIS 26.8 million increase in inventory. The inventory and receivables movements are tied to Passover timing and related stocking, so part of the pressure may reverse later in the year.

All-in cash flexibility after the quarter's actual cash uses tells a different story. Net cash used in investing activity was NIS 107.0 million, mainly NIS 63.0 million invested in fixed assets and NIS 45.0 million paid on account of fixed-asset purchases and investments. Financing used another NIS 38.2 million, mainly NIS 23.6 million of lease-principal repayments and NIS 14.6 million of bond and bank-loan repayments. After all that, cash fell by NIS 49.0 million.

This is not a balance-sheet distress read. Cash and cash equivalents were NIS 330.0 million, net financial debt to EBITDA under the bond covenants was below zero, and covenant equity was about NIS 1.59 billion versus an immediate-repayment threshold of NIS 700 million. The equity-to-balance-sheet covenant ratio was about 53.4% versus an immediate-repayment threshold of 20%. The company is far from its covenants.

The gap is capital allocation, not covenant pressure. The cash-flow statement did not include a cash dividend payment to shareholders in the quarter, but NIS 25.1 million was declared and unpaid at the end of March, and the company says about NIS 25 million was distributed between the start of the year and publication of the report. Even when the business generates cash, it has several standing uses: store investment, lease payments, debt service, and distributions.

The Land Pipeline Grows Before It Releases Cash

The most important update outside the income statement is the continued expansion in land: Dimona, 50% of land for NIS 15.25 million, of which about NIS 10 million had already been paid, Binyamina, 30% of land for about NIS 17.2 million, and Beersheba, a tender won with JTLV where the company's share is about NIS 18 million plus development levies of about NIS 17 million including VAT. The Beersheba consideration had not yet been paid and the transaction had not yet closed.

These deals strengthen the future pipeline while moving more capital into early project stages. Dimona, Binyamina, and Beersheba are planned as commercial centers with company stores. These are investments in a model that turns real estate into an operating arm of the retail network.

Timing drives the near-term value. Dimona is planned for 2028, Binyamina for 2029, and Beersheba for 2030. Or Yehuda, the largest pipeline site, is planned for 2029 and includes a logistics center that is not included in the expected selling area. First-quarter profitability does not include revenue from those sites. Investing cash flow is already starting to include their payments and advances.

There is also a governance signal to track. On May 12, 2026, an application to approve a derivative claim was filed, alleging that Mr. Eitan Yohananof exploited a corporate opportunity by buying real estate personally. The company denies the claim and states that, based on its legal advisers, it has no exposure from the claim. As real estate becomes a larger part of the thesis, governance claims around property assets carry more weight.

The first quarter strengthens the company's operating side: same-store sales jumped, operating profit improved, and operating cash flow rose. The year will be judged by cash conversion after investments, leases, and distributions. The next quarters need to show that same-store sales remain positive after the Passover effect, gross margin stabilizes, and the first-quarter cash decline does not become a recurring pattern. If growth continues to arrive with more advances and land before cash is released, the market may read the company less as an efficient food retailer and more as a retail company funding a long real-estate pipeline.