Zacks Investment Research upgrades AXIL Brands, Inc. (AXIL Quick QuoteAXIL - Free Report) to “Outperform,” reflecting accelerating operating leverage, driven by strong wholesale channel momentum, disciplined expense management and improved profitability following the company’s entry into national retail chains such as Costco. AXIL’s diversification beyond its traditional direct-to-consumer base is translating into more stable revenue streams and scalable margins.

Retail Expansion Unlocks Operating Leverage

AXIL Brands’ first-quarter fiscal 2026 marked a turning point, with net sales rising 17.2% year over year to $6.9 million, propelled by the first shipments to a national membership-based retailer. The wholesale and offline retail mix, anchored by the launch of XCOR SE earbuds and X30i filtered earplug bundles at Costco, helped elevate AXIL’s retail exposure to its highest level yet.

The company’s gross margin decreased year over year to 67.6% from 71%. Meanwhile, operating expenses fell notably, dropping to 61.6% of sales from 73.4% in the prior year. As a result, AXIL turned in operating income of $0.4 million (6% of revenues) versus a loss of $0.1 million a year earlier. Adjusted EBITDA skyrocketed 291% to $0.7 million, highlighting scalable profitability amid only modest revenue growth.

Channel Diversification Strengthens Structural Profitability

AXIL Brands’ pivot toward offline retail is reshaping its revenue mix and profit profile. While e-commerce historically delivered a higher gross margin, management notes that retail distribution offers greater cost efficiency — lower customer acquisition costs and better visibility into recurring demand. CEO Jeff Toghraie emphasized that this channel shift aligns with the company’s goal of a balanced mix between e-commerce, retail and international distribution, setting the stage for steadier cash flows and enhanced earnings resilience.

The retail-driven mix also amplifies AXIL’s ability to control fixed costs. Professional and consulting expenses declined 16% year over year in the quarter, while general and administrative spending fell nearly 11%. These efficiencies supported net income of $0.3 million, reversing from a loss of $0.1 million in the prior year and marking AXIL Brands’ first profitable quarter on both a GAAP and non-GAAP basis.

Strategic Inventory Build Supports Near-Term Growth

Inventory rose approximately 53% quarter over quarter to $3.9 million to service the initial purchase order from a new retail customer. While this expansion temporarily weighed on the operating cash flow (net cash used was $0.7 million), it reflects proactive positioning for sustained wholesale growth and not operational stress. Management expects normalization in the coming quarters as collections and fulfillment schedules stabilize.

Additionally, accounts receivable growth (skyrocketing 177% quarter over quarter to $2.8 million) reflects extended payment cycles typical of large retail accounts, but AXIL’s $4.1-million cash balance provides adequate liquidity to fund working capital during this transition.

Product Innovation Enhances Brand Momentum

AXIL’s upcoming launch of the GS Extreme 3.0 ahead of the holiday season represents the next phase of its innovation roadmap, targeting improved ergonomics and performance within the core hearing protection line. Management expects multiple next-generation releases over the next two to three quarters to strengthen retail placement and brand visibility.

Simultaneously, the company’s Reviv3 hair and skincare line, which was recently introduced across Chatters, Canada’s largest salon chain, adds optionality to the growth story, though near-term contribution remains limited.

Valuation & Outlook

At a trailing EV/Sales multiple of 1.45X, AXIL Brands trades at a meaningful discount to the consumer staples industry average of 2.9X, and its operating performance is inflecting positively. With the retail channel now scaling profitably and the company demonstrating strong cost discipline, AXIL is positioned for margin expansion and accelerating earnings growth in the coming quarters.

Zacks believes the company’s execution on offline retail penetration, operational discipline and upcoming product launches merit an “Outperform” rating, reflecting expected above-market returns over the next 6-12 months.

Conclusion

AXIL’s first-quarter fiscal 2026 validated its channel diversification strategy, with new retail partnerships driving top-line growth and structural operating leverage. With product innovation sustaining consumer demand and retail sales offering lower acquisition costs, AXIL Brands is on track toward continued profit expansion. Near-term liquidity risks from working capital growth are manageable within the current balance sheet strength.