AXIL — Fiscal Q1 2027 (Quarter Ended Aug 31, 2026) Financial Report Analysis

A tariff refund carried the quarter while big-box orders paused

AXIL Brands sells AXIL-branded hearing protection, hearing enhancement and wireless earbuds (about 95% of sales), plus Reviv3 hair and skin care products and a small new marketing-services business. In its fiscal first quarter (June–August 2026; the company's fiscal year ends May 31), revenue fell 11.2% to $6.09 million, yet net income rose 26% to $0.42 million. The gap between those two numbers is almost entirely one item: a one-time $907,067 cash refund of tariffs the US government collected under the International Emergency Economic Powers Act (IEEPA), which the Supreme Court ruled in February 2026 did not authorize them. $550,929 of that refund was booked as lower cost of goods this quarter. Without it, AXIL would have made a small operating loss.

At a glance

• Revenue $6.09M, down 11.2%. A large order from one big-box retail chain shipped in the year-ago quarter and did not repeat, and retailers held back first-generation XCOR earbud orders ahead of the XCOR II launch. Retail and wholesale sales fell 26%, while online direct-to-consumer sales held roughly flat.
• Gross margin 82.6%, up from 67.6%. Gross margin is the share of revenue left after paying for the products sold. About nine points of the 15-point jump is the tariff refund. Management puts the underlying figure at 73.6%, still higher than a year ago because a bigger share of sales came from higher-margin online orders.
• Operating cash flow +$3.76M vs. –$0.74M a year ago. This is mostly the company collecting $3.45M of receivables owed by big-box retailers for orders shipped at the end of the prior fiscal year, plus the tariff refund cash. Cash rose to $7.93M with no debt.

The numbers

Diluted EPS uses 8.25 million diluted shares, which includes the common stock that AXIL's Series A convertible preferred shares could convert into. There are 6.82 million common shares outstanding. Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, with stock-based pay also added back. The company's reconciliation table shows it at 13.6% of revenue. The MD&A text elsewhere says 14.1%, but the table's dollar figures work out to 13.6%.

Where the revenue came from

The whole decline sits in one line: hearing products sold through retail and wholesale. Online sales (AXIL's own websites and marketplaces) were steady at $3.85M. The filing names two causes. First, a big-box retailer's large order shipped in the year-ago quarter, when one customer made up 28% of total sales, and nothing that size shipped this quarter. Second, demand for the first-generation XCOR earbuds slowed before their successor launched. Management says big-box orders "are placed on our customers' own timelines rather than a fixed calendar," so quarter-to-quarter swings in this channel are expected.

Segment profit before corporate costs and non-cash items was essentially flat for hearing products ($1.02M vs. $1.03M). Hair and skin care turned a small profit of $28,193, compared with a $36,074 loss a year earlier.

What the headline numbers hide

• Without the refund, the core business lost money this quarter. Take out the $550,929 refund credited to cost of goods and operating income of $437,027 becomes a loss of about $114,000. Pre-tax income of $520,161 becomes a loss of about $66,000 if the $35,079 of refund interest is also removed. Management itself calls the refunds "non-recurring and... not indicative of our underlying operating performance," and says no IEEPA refund claims remain outstanding. So the 26% rise in net income comes from the refund, not from the business improving.
• The cash surge is collections, not new earnings. Operating cash flow of $3.76M was about nine times net income. Most of the difference is accounts receivable (money customers owe) falling from $4.75M to $1.33M as big-box retailers paid for orders shipped in late fiscal 2026. That is good cash conversion, but it is a one-time unwind of the prior quarter's build-up. Q2 will only repeat it if retail orders ship and are paid within the quarter.
• Inventory is quietly up. Inventory looks flat at $4.44M vs. $4.42M, but $321,059 of the tariff refund was booked as a reduction of inventory value. Before that credit, inventory would have been about $4.76M, roughly 8% higher on lower sales. That is consistent with stocking up for the XCOR II launch on September 15, but it is worth checking that it sells through next quarter.
• The cost lines aren't comparable year over year. A new $459,631 research and development line appears with no prior-year equivalent. Some employee and contractor costs that used to sit in compensation and general-and-administrative expense are now classified as R&D, which is why those two lines fell. Total operating expenses rose 8.8% to $4.59M. The main drivers were higher sales and marketing for the XCOR II launch, a $137,511 non-cash charge for Reviv3 shares issued to three service partners, and higher executive pay (the CEO began drawing a salary in late Q1 FY2026 and the CFO's pay rose).
• A lower tax rate helped EPS. The effective tax rate fell to 19.1% from 25.6%, which management attributes to R&D-related tax benefits. At last year's rate, net income would have been about $34,000 lower.
• Supplier concentration is extreme. Manufacturing is outsourced overseas, and the largest vendor supplied 92% of purchases this quarter, up from 80% a year ago. Any disruption at that supplier, or new tariffs on its country, would hit almost all of AXIL's product cost. On the customer side, concentration improved: no customer was above 10% of sales or receivables at quarter end.
• Related-party dealings remain. The CEO's firm, Intrepid Global Advisors, provides short-term interest-free advances that the company uses mainly for advertising spend ($56,453 advanced, $187,452 repaid this quarter). At quarter end Intrepid owed AXIL $78,822 from an overpayment. Consulting fees paid to the CEO's and CFO's affiliated firms were $0, down from $106,100 a year ago.
• Balance sheet is clean. The company holds $7.93M of cash, $10.28M of working capital and no borrowings. The filing contains no going-concern warning, and management concluded its disclosure controls were effective.

Takeaway: Q1's profit growth came entirely from a one-time tariff refund. Underlying, AXIL sold 11% less and ran at roughly break-even, because sales were lumpy and launch marketing pushed spending up. Fiscal 2027 depends on whether XCOR II orders turn into repeat retail sales from Q2 onward.

Outlook

Management expects fiscal 2027 (ending May 31, 2027) revenue and net income to grow compared with fiscal 2026, "with the impact becoming more evident beginning in the second quarter." It names three drivers: the XCOR II earbuds, wider retail and wholesale coverage that should reduce how much any single order swings a quarter, and a planned relaunch of the Reviv3 brand with new distributors. The concrete early data point is XCOR II orders. They were above $2.8 million at the August 26 announcement and above $3.6 million by September 30, with most pre-orders already shipped. That is more than half of this entire quarter's revenue, and almost all of it falls into fiscal Q2 (September–November).

Our read: Q2 revenue should rebound strongly on XCOR II shipments alone. The harder question is what remains once retailers have stocked their shelves. The filing itself warns that initial orders may not become "sustained demand." Three things to watch in the Q2 10-Q:

• whether retail and wholesale hearing revenue recovers above last year's $2.70M quarterly level;
• whether underlying gross margin stays in the low-to-mid 70s now that new Section 301 tariffs of roughly 10–12.5% apply to most imports;
• whether sales and marketing spending, already 47% of revenue, falls back once the launch is over.

Without the tariff refund, Q2 profit will have to come from higher sales.