Max Stock Ltd. (MAXO) Earnings Call Transcript

Good morning and good afternoon, everyone, and thank you for joining us today. I'm Talia Sessler, Chief Corporate Development and IR Officer. With me is Paz Oz, our Chief Financial Officer. Paz will review our second quarter and first half 2026 results and now present the second part of the presentation. Before we start, there's a presentation accompanying today's remarks. The slides are available on our IR site at ir.maxstock.co.il. At the end of our prepared remarks, we will open the line for questions. [Operator Instructions] And on Slide #2. This is our standard disclaimer in which everyone is familiar with it. And with that, I'll turn it over to Paz. Paz, please.

Thanks, Talia. We are pleased to report a strong second quarter. Revenue reached ILS 379 million, representing growth of almost 13% versus last year. This performance was driven primarily by comparable store sales growth of 7%, reflecting an increase in both traffic and average basket size with the latter continuing to benefit from a favorable product mix and growth in terms of item carrying higher average prices. Importantly, we delivered this growth despite the shift in Passover, creating a more challenging comparison as it fell in the first quarter this year compared with the second quarter last year. We expanded gross margin by 330 basis points to 47%. This improvement was primarily attributable to the strong Israeli shekel versus the U.S. dollar, alongside the improved terms of trade with our suppliers. In addition, the second quarter of last year reflected elevated logistics costs tied to the transition and ramp-up of our new distribution center, which had not yet reached full capacity. Looking ahead and assuming macroeconomic conditions remain similar we believe we can deliver a gross margin of approximately 46% in the second half of the year. These gross margin improvements, combined with continued operating leverage, powered 37% growth in adjusted EBITDA and 360 basis points increase in adjusted EBITDA margin to 20%. Note that financing expenses net increased to approximately ILS 31 million in the second quarter of 2026 from ILS 21 million in the second quarter of 2025 due largely to a loss of approximately ILS 27 million related to revaluation of future dollar hedging transaction resulting from the depreciation of the U.S. dollar against the Israeli shekel compared to a loss of ILS 16 million in the second quarter of last year. As of June 30, 2026, we hold forward hedging transactions to purchase U.S. dollars at exchange rate ranging from ILS 2.80 to ILS 3.43 covering approximately USD 34 million for the remainder of 2026, approximately USD 51 million in 2027 and approximately USD 26 million in 2028. As of June 30, 2026, the U.S. dollar exchange rate stood at approximately ILS 2.98, similar to its rate today. As long as the dollar-shekel exchange rate remains roughly at its current level, our evaluation losses are expected to significantly decline in the coming quarters. Even with the increase in net financing expenses, we achieved GAAP net income of ILS 36 million, an increase of 30% year-over-year, representing a net income margin of 9.5%, adjusted EPS attributable to shareholders increased 35% to 23%, a growth, reflecting strong profitability across the board. Looking at our second quarter trends over multiple years on Slide 4, you can see the consistent momentum we have built in the business. Since 2023, revenue has grown at a CAGR of 14%, while gross profit has grown at a CAGR of 20%. Adjusted EBITDA has grown at an impressive CAGR of 37% and our adjusted EPS has grown at a CAGR of 27% underscoring our ability to scale the business profitably while delivering increasing returns to shareholders. Turning to our first half results on Slide 5. Revenue reached ILS 780 million, up to 15% year-over-year, driven by comparable store sales growth of 12%, reflecting the underlying strength of our business model. Gross margin expanded 330 basis points to 46% adjusted EBITDA growth, 46% to ILS 153 million and GAAP net income increased 44% to ILS 86 million, representing a net income margin of 11%. Adjusted EPS attributable to shareholders increased 36% to 56% a growth. Slide 6 shows the same multiyear momentum on a first half basis. Since 2023, first half revenue has grown to 30%, while over the same time, our CAGR for gross profit, adjusted EBITDA and adjusted EPS is 18%, 32% and 28%, respectively. Our capital structure remained very strong. We ended the quarter with ILS 132 million in cash and net cash of ILS 101 million after distributing ILS 80 million in dividend in April of this year. Yesterday, our Board of Director declared an additional onetime dividend of ILS 50 million for 36 agurot per share with a record date of August 18 at the payment date of September 9, representing an LTM dividend yield of approximately 3%. And pro forma for this expected September dividend distribution, our net cash stands at approximately ILS 51 million. We remain committed to a balanced capital allocation strategy that funds our growth while consistently returning capital to shareholders. And now I will turn the call back to Talia.

Thank you, Paz. And then Slide #8. Let's discuss now what's driving this strong performance post ops. On Slide #9, our 3 largest categories, again, delivered a healthy growth in the first half. Housewares our largest category at 28% of first half revenue grew 10% year-over-year. Party supplies, storage and consumables at 18% of revenue grew about 15%. And Toys and Babies at 30% of revenue grew almost 16%. Apparel Basics also delivered strong growth of 16% while art and crafts and office and school supplies each declined modestly, down 3.5% and 1.5%, respectively. Note, however, that Q3 is a relevant quarter for the office and school supplies category, driven naturally by the back-to-school season. On the next slide, Slide #10, our other category, which contributed about 31% of first half. And as you know, consists of more than 25 subcategories grew almost 30% year-over-year. These smaller lines of business continue to scale and provide us with another important top line growth drivers for the year ahead. On Slide 11, you can see our first half sales growth by category through a bridge analysis. Within our other category, Confectionary and Snacks, Home and personal care and Purim costumes and accessories were the primary contributors to the increase. Within Housewares, growth was driven primarily by furniture, which naturally carries a significantly higher average ticket price, along with textile and home decor. As you can see, our average basket size continues to benefit from growth in these items across multiple categories, whether this reflects item with a higher price tag, the sale of multipacks that offer a more attractive price per unit or higher quality merchandise that we are now venturing into and that we did not carry in the past, offering it at a significantly lower market price and for which we are seeing tremendous decent. Now turning to our key KPIs on Slide 12. First half comp store growth reached 12%, which doesn't include any impact from the timing of the Jewish holidays. And second quarter comp store sales growth was 7%, which reflects the shift of Passover into Q1 this year compared to a favorable impact in Q2 of last year. We continue to see a positive mix impact on average basket size, which increased 8.5% same stores for the first half and 2.8% in the second quarter. The gap between the growth in average basket size and comp store sales growth by definition reflects an increase in the number of transactions. Accordingly, we generated a nice volume increase of approximately 3.5% in the first half and 4.2% in the second quarter. Slide 13 shows similar trends across our company-owned store base. First half annualized sales per net square meter reached almost ILS 22,000, up 11.3% year-over-year and average basket size across increased 7.6% in the first half. These results continue to demonstrate that our value proposition resonates with Israeli consumers and we're running strong productivity from existing store base. Looking at our store pipeline on Slide 14. We have 5 high-quality stores and 1 store expansion based on site agreements. Our new Ad Halom store is expected to open at the end of August this year in this month and 4 additional stores in Gan Yavne, Bnei Brak, Ofakim and Tirat HaCarmel are expected to open in 2027. In addition, we are working on an extension of one of our existing stores in Kiryat Yam, it's expected to be ready early next year. Combined, these stores represent approximately 10,000 gross square meters or approximately 7,400 net square meters of new selling space. Also note that we expect to close our older smaller store in Beer Sheba by the end of August this year, following the opening of our new 4,300 net square meter flagship location there earlier this year, representing a reduction of approximately 2,200 net square meters. We continue to negotiate additional store opportunities across the country keeping us on track with our target of opening 3 to 5 new company-owned stores annually. Before we move to the Q&A, I want to recognize once again, our higher Max Stock team for their entire -- for their strong execution that delivered these outstanding results. The strength of our second quarter and first half 2026 performance reflects our proven business model, operational capabilities and our disciplined growth strategy. And looking ahead, we expect business trends to remain favorable for the remainder of 2026. We continue to invest in growth through our store expansion program, and we remain focused on delivering value to both our customers and our shareholders. We're now ready to take any questions.

Okay. Can you please discuss your pricing and value initiatives for higher-priced merchandise and how that is contributing to results and the expectations going forward. So while this is still -- and a relatively early initiative, hence, it's difficult to project going forward, we do see a lot of potential in same-store sales growth coming from this -- some premiumization of -- what we had seen so far is that there is a lot of demand for higher quality merchandise as long as it is in the right price and deeply discounted versus other alternatives. We see it across categories. It's not just one single category. One of the reasons we saw basic apparel grow significantly this quarter was exactly that initiative. Also other categories reflected the same concept. I think if in the past, we were looking more just at volume growth, then the additional positive mix impact can further boost our same-store sales growth going forward. But that is still up to us to execute and to make sure that we still remain very true to our DNA, to our core values vis-a-vis the consumer. How should we think about the mix of comp growth between higher average basket size and traffic? I think we typically guide to around 3% same-store sales growth and our mindset was more focused on volume growth. So I think anything on top of that is likely to come from a positive mix impact, but it's very difficult to project going forward because it is obviously a reflection of the strength of our buying team and the strength of our initiatives. So far, it has been very, very good. Another question related to the average basket size. Do you have more opportunity to grow the average basket size, I think we do. I think we do. I think that it can be done in various categories. But again, it's very early in terms of the maturity of this initiative, and we will have to make sure that we still remain very loyal to our core values and to our consumers. So it's going to take some time. Can you talk about the trends that are driving your other category? We did speak about it when we showed the bridge, but there is one element. The first one is related to dry food. So the confectionery and salty snacks and all of this dry food category. Before, it used to be as a shop within a shop, and we generated primarily commissions from this category. Now we shifted most of this category into owned category, and we see the benefit both from consolidating 100% of the sales and also from boosting the sales when measured on an apples-to-apples basis. And there is more potential for growth, both in this category and in other categories that are in the same -- in similar situations. So we can bring additional categories in-house and benefit from that trend. All right. Thank you very much for joining us, and please feel free to reach out to us with any further questions. We will also try to set up some Zoom calls with any interested investors to speak with you directly. Thank you very much, and have a great day.