Shares of AXIL Brands, Inc. (AXIL Quick QuoteAXIL - Free Report) have gained 0.2% since reporting results for the first quarter of fiscal 2026 against the S&P 500 index’s 0.07% decline. However, over the past month, the stock has declined 19%, trailing the S&P 500’s 2.5% growth, reflecting investor caution despite the company’s improved quarterly results.

AXIL Brands reported net sales of $6.9 million for the quarter ended Aug. 31, 2025, up 17.2% from $5.9 million in the prior-year period. Net income stood at $0.3 million, reversing a net loss of $0.1 million a year earlier. Basic and diluted earnings per share were 5 cents and 4 cents, respectively, against a loss per share of 2 cents incurred for both metrics last year.

Operating income improved to $0.4 million, or 6% of revenues, from an operating loss of $0.1 million, while adjusted EBITDA surged 291% to $0.7 million. The gross margin declined modestly to 67.6% from 71%, primarily reflecting a shift in revenue mix toward wholesale retail channels.

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Revenue Mix & Business Metrics

The quarter’s revenue growth was driven primarily by AXIL’s hearing protection and enhancement products, which recorded 25% year-over-year growth within the AXIL-branded portfolio. The company’s expansion into wholesale and retail channels, most notably its entry into Costco with the XCOR SE earbuds and X30i filtered earplug bundle, was a key contributor to the sales increase. While this shift reduced gross margin slightly, it significantly improved operating leverage, with operating expenses holding flat year over year and declining as a percentage of revenues from 73% to 62%.

Cash and equivalents declined to $4.1 million as of Aug. 31, 2025, from $4.8 million at the end of fiscal 2025, primarily reflecting increased working capital needs. Inventory rose to $3.9 million from $2.5 million in May 2025, in line with the company’s strategy to support its growing wholesale segment. Net cash used in operating activities totaled $0.7 million compared to net cash provided of $0.9 million in the prior-year period.

Management Commentary

Chairman and CEO Jeff Toghraie noted that the fiscal first quarter represented AXIL’s most retail-heavy revenue mix to date, driven by shipments to a new national membership-based retail chain. He emphasized that despite higher sales and marketing expenses to support this expansion, the company achieved solid profitability through strict cost discipline and a more favorable revenue mix.

Toghraie credited AXIL’s channel diversification strategy, spanning e-commerce, offline retail and international distribution, as a major factor in stabilizing performance and positioning the firm for sustainable growth.

He added that while e-commerce historically dominated AXIL’s sales, retail channels now offer greater profitability and operational efficiency due to lower customer acquisition costs. The company expects this trend to continue as retail distribution widens. Toghraie also highlighted upcoming product innovation, including the launch of the GS Extreme 3.0 in time for the holiday season, aimed at strengthening AXIL’s position in the high-performance hearing protection segment.

Factors Influencing Results

The quarter’s headline performance was influenced by a deliberate shift in channel strategy and effective cost management. While wholesale expansion slightly pressured the gross margin, the offset came from higher total revenues and efficiency gains. The increase in accounts receivable and inventory reflected stronger wholesale demand and the need to fulfill initial purchase orders from new retail partners.

The decline in operating cash flow primarily stemmed from working capital adjustments tied to this retail growth, not from deteriorating profitability. On the expense side, sales and marketing costs rose to $2.79 million from $2.67 million a year earlier, but professional and consulting expenses fell 16% to $0.8 million, demonstrating operational discipline. General and administrative costs also decreased to $0.43 million from $0.49 million, reinforcing management’s commitment to cost control.

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Management expressed optimism about continued growth in the hearing protection, and Reviv3 hair and skincare segments. AXIL’s leadership sees potential for the Reviv3 brand to evolve from a minor business line into a meaningful contributor, supported by its recent rollout across Chatters, Canada’s largest salon chain. The company’s product roadmap includes several new or next-generation items expected to launch over the next two to three quarters, targeting improved ergonomics and performance features.

Management also reaffirmed its belief that current cash reserves are sufficient to fund operations and strategic growth without external financing, underscoring balance sheet resilience and internal liquidity strength.

Other Developments

In the quarter, AXIL expanded its retail footprint significantly through the introduction of the XCOR SE earbuds and X30i filtered earplug bundle at Costco, both in stores and online. It also launched the full Reviv3 Procare product line in Chatters’ 115-plus Canadian salons, marking a meaningful step into the professional beauty channel. No acquisitions or divestitures were reported for the period.

Overall, AXIL Brands’ fiscal first-quarter performance demonstrated clear progress in executing its channel diversification and profitability strategy. Despite a modest decline in the gross margin, the company turned profitable on both a GAAP and adjusted EBITDA basis, reflecting stronger revenue, disciplined spending and improved operating leverage.

While near-term investor sentiment has softened, reflected in the stock’s recent pullback, the company’s expanding retail presence, product launches and focus on operational efficiency provide a constructive backdrop for sustained long-term growth.