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

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 COO and Head of Finance; and Paz Oz, our recently appointed new CFO, who will be starting her new role effective December 1, 2025. A few words about Paz. Paz has been an invaluable member of our team since April 2018, having held various senior positions within the company and most recently, serving as Vice President and Director of Finance, a deep understanding of our business, proven financial expertise and strong leadership capabilities make her the ideal person to lead our finance organization as we continue executing on our long-term growth strategy. I'm confident that Paz will serve the company exceptionally well in this role.

Thank you, Talia. It's a pleasure to be joining today earnings call. I am very excited to step into my new role as CFO next month, even though I know I have big shoes to fill. Nir has been a tremendous leader at Max Stock, especially within the finance department, but I am confident that myself, along with Ori, Talia and the rest of the team is prepared to build on the solid foundation Nir has established. With that, I'll turn the floor over to Nir.

Thanks, Paz. Slide 2. This is our standard disclaimer. I think everyone here is familiar with that. Note that there is a presentation accompanying today's prepared remarks. The slides are available on our IR website. Before I dive into our financial results, I want to take a moment to address my transition. As I announced in September, I will be stepping down from my role as Deputy CEO and Head of Finance, at the end of this year after almost 10 years in Max Stock. I would like to thank Ori Max and Zehavit Cohen, the entire Max Stock team, our Board of Directors and our shareholders for their tremendous support during almost a decade at the company. Turning now to our third quarter performance on Slide 3. We are very pleased with our strong operating results in the period, driven by gain across all key metrics. We delivered exceptional third quarter revenue of ILS 399.1 million, representing growth of 7% from the third quarter of 2024. Our top line performance was driven by a 5% increase in comparable store sales with our July through October comparable store sales growth accelerating to 5.4%, demonstrating continued momentum in the business. We delivered an outstanding 300 basis points of gross margin expansion in the period to 44.3% as we continue to capture operational efficiencies and improve supply chain management, as well as a benefit from the strength of the Israeli shekel versus the U.S. dollar and low shipping costs. Going forward and assuming that the macro environment remains similar to the current situation, I believe that we can achieve a gross margin of 43% even 43.5% in the next quarters as well. These factors were the main driver beyond the progressive 220 basis point expansion in adjusted EBITDA margin to 17.4%, and our strong adjusted EBITDA growth of 22.6% to ILS 69.3 million in the third quarter. Most importantly, we achieved GAAP net income of ILS 44.9 million, representing growth of 31.1% year-over-year with an 11.3% net income margin. Our adjusted EPS grew about 30.3% to 0.29%. Turning to Slide 4 to look at our third quarter trends over a multiyear period, our revenue has grown consistently with strong momentum since 2022. We expanded gross margin by 420 basis points compared to the third quarter of 2022. Adjusted EBITDA has grown at an impressive 18.3% CAGR with margin expansion of 300 basis points to 17.4%. Our adjusted EPS has grown 81% since the third quarter of 2022, demonstrating the strength and scalability of our business model. Moving to Slide 5. This chart demonstrates the increasing contribution of net income attributable to shareholders, which has grown significantly over the past 3 years, outpassing total net income growth. Our third quarter 2025 adjusted net income attributable to shareholders, which reached almost ILS 41 million, representing 1.8x growth compared to the third quarter of 2022, and we achieved 90.9% of our adjusted net income attributed to shareholders compared to 83.9% 3 years ago demonstrating the compounding value creation for our shareholders. On Slide 6, our 9 months performance highlighted of revenue of ILS 1.1 billion, representing growth of 7.1% from the same period of 2024. Our top line performance was driven by a 4.1% increase in comparable store sale with our January through October comparable store sale grant of 4.4%. Like the third quarter, our top line results, combined with strong gross margin expansion fueled a 180 basis point increase in adjusted EBITDA margin to 16.2% and robust of 20.4% growth in adjusted EBITDA to ILS 173.7 million in the 9-month period. We achieved GAAP net income of ILS 104 million, representing growth of 13% and with a 9.7% net income margin and adjusted EPS growth of 13.5% to ILS 0.67. Slide 7. Comparing the 9-month period of 2025 to longer-term trends on Slide 7. Our revenue and gross profit performance continued to demonstrate our strong fundamentals. Revenue has grown at a CAGR of 10% and gross margin expanded by 400 basis points. 9 months adjusted EBITDA performance showed consistent margin expansion and strong momentum as well. Now I will turn the call back to Talia.

Thank you, Nir. Turning to Slide 8. Our strategy of profitable growth, coupled with disciplined capital allocation, results in very strong operating cash flow. Since 2017, we've generated almost ILS 700 million or ILS 668 million in free cash flows and returned approximately ILS 479. We, of course, back to our shareholders through dividends and share buybacks. This includes our recent dividend distribution and I'm pleased to announce that we've declared and paid ILS 110 million in dividends year-to-date through November 2025, representing a trailing 12-month dividend yield of approximately 3%. On Slide #9, you can see that we remain in a very strong financial position with net cash of approximately ILS 87 million as of September 30, 2025. This represents a significant improvement from our net debt position at the end of 2024, demonstrating our strong cash generation capabilities, and that is despite the dividend distribution I just alluded to. With our history of consistent cash generation, we have ample liquidity and financial flexibility to execute upon our growth strategies going forward. And then going to Slide #10 and Slide #11. Looking at our core categories, each delivered solid growth in the 9-month period. Housewares, our largest category, representing 27% of 9 months 2025 revenue, delivered strong 5.5% growth. Party supplies, storage and consumables represented 15% of revenue grew strongly at 12.6%. Toys and Baby at 13% of revenue grew 4.4%. Arts and crafts delivered 2.8% growth and office and school supplies grew 2%. On Slide #12, are other categories. which represented approximately 26% of 9-month 2025 revenue and comprise over 25 subcategories. That category was up 12.5% compared to the same period in 2024. These smaller subcategories continue to scale and provide us with another important top line growth driver. Our other categories growth this year was led by a gradual transition to direct sales of dry and packaged food, which mainly includes confectionery, sweets and candy alongside the growth of confectionery, we also saw strong growth in the pharmacy and drug store category and in cleaning products, as well as in outdoor. Turning to Slide #13 to cover some of the relevant KPIs for our store fleet. We continue to deliver solid comparable store sales growth. As Nir mentioned, looking at Q3 2025, we delivered 5% comparable store sales growth with July through October, showing acceleration to 5.4%. Note that this period actually neutralized the timing of the Jewish holiday season. For the 9-month period on Slide #13, we've achieved 4.1% comparable store sales growth with January through October, again, neutralizing the timing of the holiday season. even stronger at 4.4%. The average basket size for same stores increased 3.9% in Q3 and 3.4% for the 9-month period, which means we also benefited from volume growth of approximately 1% in this period. Next on Slide 14. You can see that our sales efficiency metric sales per square meter across all owned stores, including new stores continues to be strong. This number reflects the revenue per square meter for the first 9 months of the year, normalized on an annual basis. It reflects growth of approximately 3.8% compared to the corresponding period with sales per square meter of almost 21,000 in annual terms, of course. Here, too, the average basket size grew at a similar rate of approximately 3%. And in addition, we've achieved a 3% increase in volume growth. Next, on Slide 15, as most of you know, storage expansion is one of our primary growth drivers. And on Slide 15, you can see the evolution of our store base and the significant white space opportunity that still is ahead of us. With approximately 661,000 net square meters as of September 30, 2025, and also as of today, and our store count remained stable at 37 owned stores in Israel, which contribute over 90% to our revenue that is driven by owned location. Year-to-date, we opened one owned Max Stock in Gedera in February this year with the size of 1,900 net square meters. We closed one owned stores in Gush Etzion in March as it was not meeting our KPIs, and we think that this demonstrates our disciplined approach to maintaining only profitable and high-performing locations. Regarding Portugal, a short update. As of today, our subsidiary in Portugal has terminated all of its contracts with property owners, also most of the engagement with companies employees have been concluded. We expect that the process of closing Portugal operation will be completed by year-end with relatively negligible costs. Then on Slide 16. This year's pace of our store openings was below our long-term target. But we know that the pace of store openings is not always linear. What is important, ultimately, is that looking ahead, we have five signed contracts in the pipeline for the opening of approximately 8,600 net square meters. Four of these stores Or Akiva, Be'er Sheva, Ad Halom and Ganei Yavne, are expected to open during next year. With Or Akiva and Be'er Sheva, expected to open in the first half. And then just the back of the envelope calculation, if we take the selling space of those branches, approximately 7,000 square meters, multiply them by 75% as it is the sale potential for a new store in the first year, then multiply it by approximately ILS 20,000 per net square meter. We know that the current figure is actually higher. And divided by 2, assuming an even distribution of opening dates throughout the year, we get an expected contribution of approximately ILS 50 million next year in terms of revenue contribution. This is just from those stores. Next on Slide 17. I know this slide, our overall target of opening three to five stores per year has not changed, and we are also in negotiations for additional branches. Our goal for 2030 remains 110,000 net square meters. Finally, when we analyze what underpins our recent excellent results, there are five main drivers. The first one, continued store openings and the resilience we demonstrate in like-for-like sales growth over time, even during a challenging period. The second one, better trading terms with suppliers and greater economies of scale in operations realized from higher sales volume. The third one, the meaningful gross margin expansion that we've seen and more inventory control through our combined initiative to transition to the Central DC in [ Shamaryah ], alongside increasing the direct import component from approximately 60% in 2024 to approximately 70% this year. The fourth one, the strengthening of the shekel versus the U.S. dollar and the moderation of shipping costs. Obviously, the macroeconomic environment also contributes to the expansion of gross margin. And finally, as Nir mentioned in more detail, our new store opening strategy, based on 100% ownership model alongside specific buyout of minority holdings in some branches, ensures that over time, a larger portion of the net profit is attributed to our shareholders. Before we proceed -- you can go to the next slide there. No, there's nothing -- we had a question-and-answer session. I wanted to warmly thank Nir for his guidance and support over the past 4 years. It has been a pleasure working with you, and I wish you all the very best during the next chapter of your life. I also want to congratulate Paz on her appointment as Chief Financial Officer. It is well deserved, and I look forward to working more closely with you, Paz in your new role. With that, operator, we are ready to take questions.

Okay. So first, best of luck Nir. Welcome, Paz. Can you talk about the health of the Israeli consumer and how that how that is informing your planning for Q4 and next year? Sure. So I would highlight a few things first in terms of the macroeconomic environment. it's pretty good. Inflation is moderating. We are now at 2.5%, which is below the upper ceiling for inflation because of the moderation of inflation and because of the strengthening or the strength of the Israeli shekel. It is likely that interest expense -- interest rate will go down. Currently, it is at 4.5%, but it is expected that the governor of the Israeli bank will reduce it sooner rather than later, which will help expand disposable income for consumers. As you look throughout the year, we see an acceleration of same-store sales growth, so the first quarter was at 3.6% same-store sales growth, then we had 4.2% and now we have 5% and then October is even stronger. So that has been very, very robust and with good momentum. And overall, I think the economy has exhibited very strong resilience. The situation is better now, and hopefully, we remain.

In a good position.

Yes. And overall, thinking about Q4, everything that was present at Q3, we expect it to remain. The macroeconomic environment. Hopefully, gross profit is here to stay at least for the next few quarters and we see a positive momentum in same store. Anything else? How have your new stores opened in 2024 and 2025 performed versus your expectations?