Max Stock Ltd. (MAXO.TA) Earnings Call Transcript & Summary

Good morning and good afternoon, everyone, and thank you for joining us today. I'm Talia Sessler, Chief Corporate Development and IR Officer; and with me on the call today is Nir Dagan, our Deputy CEO and Head of Finance. Nir will start with a review of our second quarter and first half 2025 results, and I will be presenting the second part of the presentation. Before we start, as a reminder, there is a presentation accompanying today's prepared remarks. The slides are available on our IR website at ir.maxstock.co.il. And on Slide #2, this is our standard disclaimer language. I think everyone is familiar with it. And with that, I'll turn the floor over to Nir to go through the financials.

Thank you, Talia. We were pleased with our second quarter operation performance, which contributed to a very good first half of 2025 for Max Stock. Jumping into the results, starting on Slide 3. We delivered second quarter revenue of ILS 336 million, representing growth of 6.1% from the second quarter of 2024. Our top line performance was driven by 4.2% increase in comparable store sales on top of a strong 14.5% increase in the second quarter of 2024 for a 2-year stack of 18.7%, demonstrating the resilience of our business model despite the ongoing war. We delivered 210 basis points of gross margin expansion in the period as we continue to capture operational efficiencies from our new distribution center and improved supply chain management. These factors were the main drivers beyond the 270 basis point expansion in adjusted EBITDA margin to 16.8% and our adjusted EBITDA growth of 26% to ILS 56.5 million in the second quarter. It is important to note that slight contraction in our new net income and EPS year-over-year was driven by approximately ILS 15.9 million of interest expenses related to revaluation of hedging position due to a fraction of the shekel versus the U.S. dollar as of June 30, 2025. Finally, we are pleased to announce another special onetime dividend of ILS 40 million that is expected to be paid next month. Turning to Slide 4 to look at our second quarter trend longer term, our revenue has grown consistently with a CAGR of 10% since 2022. We expanded gross margin by 450 basis points compared to the second quarter of 2022. Adjusted EBITDA grew at a CAGR of 24.4% with margin expansion of 520 basis points to 16.8%. On Slide 5 is our first half performance, highlighted by revenue of ILS 675 million, representing growth of 7.2% from the same period in 2024. Our top line performance was driven by a 3.6% increase in comparable store sales with a 2-year stack of 12.5%. Like the second quarter, our top line results, combined with strong gross margin expansion fueled a 150 basis point increase in adjusted EBITDA margin to 15.5% and 19% growth in adjusted EBITDA to ILS 104.5 million in the first half of 2024. Slide 6. Comparing the first half of 2025 to long-term trend on Slide 6, we can see similar strong trends versus the quarterly trends I just discussed. Looking at our performance over a long period of time on Slide 7, we are very pleased with the 2.5x growth we've achieved in revenue and 3.1x gross profit growth over the past 8.5 years, reaching almost ILS 1.4 billion and ILS 582 million respectively on the last 12-month basis. Slide 8 shows our steady 2.7x growth in adjusted EBITDA pre-IFRS 16 and 2.6x growth in adjusted EPS attributed to shareholders, a truly remarkable performance. I'll now turn the call back to Talia. Talia?

Thank you, Nir. Turning to Slide #9. Our strategy of rapid growth, coupled with moderate capital expenditures results in very strong operating cash flows. Since 2017, we've earned a total of ILS 591 million in free cash flows and returned approximately ILS 479 million of this back to our shareholders, primarily through dividends and also through share buybacks, including ILS 70 million distributed in April 2025 and the dividend that we had just announced this morning in the amount of ILS 40 million with a record date of August 21, representing a total trailing 12-month dividend yield of approximately 5%. Next on Slide 10, you can see that we remain in a strong financial position with net cash of ILS 55.4 million as of June 30, 2025, following the ILS 70 million dividend distribution in April. If we pro forma out the dividend declared, our net cash position is ILS 15.4 million. And with our history of strong cash generation, we have ample liquidity and financial flexibility to execute upon our growth strategies going forward. Now moving to key growth drivers on Slide 12. Our 6 core categories each delivered robust growth in the first 6 months of the year. Housewares, our largest category, representing 29% of H1 2025 revenue delivered a strong 8.4% growth. Party supplies, storage and consumables, representing 15% of revenue, grew double digit at 11%. Toys and Baby at 13% of revenue grew 7.8%. And arts and crafts delivered an 8.1% growth. Note that the strong growth in housewares had a positive impact on the growth of the average basket size in the period through a positive mix effect. Office and school supplies as well as apparel basics are 2 relatively small categories that were down this period as they enjoyed particularly strong demand in the first half of last year given the start of Iran war. On Slide 13, you'll see our other categories, which represented approximately 28% of H1 2025 revenue. And that category was up 8.1% compared to H1 2024. The more than 25 smaller subcategories that comprise this segment continue to scale up and provide us with another top line growth drivers for the years ahead. Now turning to Slide 14, to cover some of the relevant KPIs for our store fleet, starting with comparable store sales growth. We're pleased to continue to deliver solid growth, especially considering our very strong 2025 results. Looking at Q2 '25, we delivered 4.2% comparable store sales growth on top of 14.5% growth in Q2 '24. For the first half, we've achieved 3.6% comparable store sales growth on top of an 8.9% growth in H1 2024. The average basket size for same-store sales stores increased 3% for both Q2 and H1 2025. Then you can see on Slide #15, our sales productivity metrics remain very strong. For the first half, annualized sales per net square meter were almost ILS 20,000 compared to slightly less than that ILS 19,256 in H1 2024, representing growth of 2.5%. We also continue to deliver solid average basket metrics with H1 2025 average basket size up 2.5% compared to the first half of 2024. As most of you know, store expansion is one of our primary growth drivers. And on Slide #16, you can see the evolution of our store base and the significant white space opportunity that lays ahead. We currently have approximately 66,000 square meters, representing growth of 63% from 2019. And looking ahead to 2030, we believe we can expand our current footprint to 110,000 square meters with 75,000 square meters of existing net selling space plus current pipeline. This is very achievable. Long-term target would result in a 2.7x expansion of Max Stock over an 11-year period. Then on Slide #17, as we look at our store pipeline, you can see that we have 5 signed contracts for the opening of about 8,600 square meters net. 4 of these stores, Or Akiva, Beer Sheba, Ad Halom and Gan Yavne are expected to open by the end of the first half 2026 thus contributing to sales in the second half of next year. If we take the net selling space area of those branches, it's about 7,000 net square meter, just multiply it by 75% sales potential because it's the first year and then times our ILS 20,000 sales per net square meter divided by 2 in light of 6 months of activity, and you get expected addition of about ILS 50 million in sales, which is pretty conservative just from these 4 stores. Again, our target of opening 3 to 5 stores per year remains the same, and there are additional potential new stores that are in various negotiation stages. And before we proceed with the Q&A session, I would like to thank the entire Max Stock team for their ongoing efforts during these challenging times. Even as the operating environment remains difficult due to the ongoing conflict, our strong teams are -- and proven growth strategies are delivering solid results while positioning us for future growth. As we look to the second half of the year, we remain confident in the underlying strength of the business and our ability to continue to execute on our long-term growth strategy. And now we're ready to take any questions.

[Foreign Language]

Okay. Yes. So how should we think about comparable store sales growth in the second half in line with your strong long-term target of 3% or above that level like you delivered in Q2? So we typically cannot give any specific guidance for the coming -- the upcoming quarters. That said, we can say that if you look at the pace of same-store, it has accelerated throughout the year. So Q1 was 3%, Q2 was 4.2%, and we're very optimistic about the remaining of the year. However, our overall 3% annual long-term target still remains the same. And there's another question regarding gross margins. How should we think about gross margins? And maybe for the third quarter and maybe for the fourth quarter. So here, so listen, we had almost 44% gross margin.