São Paulo, Brazil, July 25, 2017 - GPA [BM&FBOVESPA: PCAR4 (PN); NYSE: CBD] announces its results for the 2^nd Quarter of 2017. The comments refer to the consolidated results of the Group or of its business units. All comparisons are with the same period in 2016, except where stated otherwise. In the quarterly financial statements of GPA as of June 30, 2017, due to the ongoing divestment of the interest held by GPA in Via Varejo S.A., as announced in the material fact notice of November 23, 2016, the operations of Via Varejo are treated as discontinued operations, with a retrospective adjustment of net sales and other profit or loss accounts, as required under IFRS 5/CPC 31, approved by CVM Resolution 598/09 – Sale of non-current assets and discontinued operations.

2Q17 RESULTS

Net sales up 9.0%⁽¹⁾, driven by 29.2%⁽¹⁾ growth at Assaí and continued recovery at Extra banner.

Food Segment Adjusted EBITDA of R$551 million⁽²⁾, growing 104.3% from 2Q16⁽²⁾

Net income attributable to controlling shareholders improved to R$165 million, with margin of 1.5%

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“GPA’s 2Q17 results show our operational, commercial and financial progress across the Company's businesses, despite a still highly challenging macroeconomic scenario. To cite a few examples, the five initial conversions of hypermarkets to Assaí stores have resulted in higher sales multiples per square meter than our expectations, at Multivarejo we have been increasingly surgical and efficient in our communication with customers through initiatives such as "My Discount", and in ViaVarejo we have reaped the fruits of integrating e-commerce with brick and mortar stores. We remain confident and focused on implementing our strategic priorities for the second half of the year”.                            

Ronaldo Iabrudi – CEO of GPA

Gross Profit and Adjusted EBITDA excluding non-recurring tax credits ⁽⁵⁾

⁽¹⁾ Totals and percentages may not add up due to rounding. All margins were calculated as a percentage of net sales; ⁽²⁾ Earnings before interest, tax, depreciation and amortization; ⁽³⁾ Adjusted by “Other Operating Income and Expenses”  ⁽⁴⁾ Net Income adjusted by “Other Operating Income and Expenses”,. ⁽⁵⁾ R$447 million in 2Q17 (exclusively at Multivarejo) and R$288 million in 2Q16 (R$219 million at Multivarejo and R$69 million at Assaí).

SALES PERFORMANCE

Net Sales totaled R$10.7 billion, up 9.5%, or 9.0% if adjusted for the calendar effect, driven by:

·         Consistent growth by Assaí, of 27.7% (or 29.2% if adjusted for the calendar effect), with volume growth neutralizing the effect of lower inflation;

·         Acceleration of the Extra banner, especially Hiper (same-store sales growth of 7.6%, compared to 5.4% in 1Q17, adjusted for the calendar effect);

·         Multivarejo and Assaí continued to gain market share in the quarter .

At Multivarejo, net sales in the quarter amounted to R$6.4 billion, with same-store sales growth of 1.2%, adjusted for the calendar effect. The highlights were the continuous market share gain in 2017 compared to 2016, and accelerated growth of Extra Hiper, driven by the sequential improvement of non-food categories.

In the total-store concept, performance was negatively impacted by the closure of Extra Hiper stores, which will be converted into Assaí stores and also by the sharp decline in food inflation. Some food categories, such as vegetables, registered deflation in June, which affected the performance of the Pão de Açúcar and Extra Super banners, whose share of these categories is higher.

The end of the quarter saw the launch of the “My Discount” Program, which consists of personalized offers through a mobile app targeted at around 12 million customers of the loyalty program. Other initiatives were also implemented or are under implementation to increase customer traffic and sales:

·         Strengthening of commercial campaigns at regional units;

·         Cell phone bonus: promotional discounts obtained at the store may be converted into prepaid bonus; 

·         Pão de Açúcar store renovations: target of renewing approximately 15-20 stores in the coming quarters.

At Assaí, net sales totaled R$4.3 billion, growing 27.7% from 2Q16 (or 29.2% adjusted for the calendar effect). Same-store sales growth accelerated to 13.5% adjusted for the calendar effect, driven by strong growth in customer traffic and volumes in the quarter, which offset the decline in food inflation. Important to highlight the acceleration of real growth compared to the previous quarter.

With Carapicuíba store conversion on June, Assaí totaled 110 stores and already accounts for 40.1% of Food Business’ net sales, compared to 34.4% last year. The format continued to gain market share in the quarter, of around 400 bps compared to the same period last year, in an expanding market segment.

In 1H17, the converted stores maintained a high sales multiple of around 2.5 times and their profitability was similar to the total profitability of the format, which is already higher than it was prior to their conversion.

OPERATING PERFORMANCE BY BUSINESS

Multivarejo

Gross profit came to R$2,198 million, with margin of 34.4%. The period was impacted by the recognition of non-recurring tax credits related to the restitution of ICMS ST (Tax Substitution), which generated a positive impact of R$447 million on gross margin. Excluding the effects from these tax credits, gross margin was 27.4%, virtually stable in relation to 1Q17. Compared to the margin of 25.8%^(*) in 2Q16, the expansion was 160 bps. The main impacts were: 

           ·            Improved shrinkage levels due to higher logistics efficiency;

           ·            More successful investments in promotions;

           ·            Closure of Extra Hiper stores, whose gross margin is lower than the average of Multivarejo;

           ·            New tax framework for ICMS ST (Tax Substitution), whose positive impact was mostly offset by Easter.

Selling, general and administrative expenses came to R$ 1,468 million, down 3.0% from 2Q16, chiefly due to:

           ·            Reduction in electricity consumption as a result of the efficiency projects;

           ·            Optimization of headcount due to productivity gains in the operations at stores and DCs.

Other Operating Income and Expenses were an expense of R$272 million and mainly related to the following: (i) inclusion of federal taxes of R$183 million in the Special Tax Regularization Program (PERT); and (ii) restructuring expenses related to stores under conversion process to Assaí and property, plant and equipment results which totaled R $ 80 million.

Adjusted EBITDA, excluding tax credits, amounted to R$311 million in the quarter, growing 82.3% from 2Q16^(*). Adjusted EBITDA margin reached 4.9%, up 220 bps from 2Q16^(*).

Assaí

Gross margin reached 15.8%, higher than in 2Q16^(*), mainly due to:

·         Higher-than-expected maturation of stores opened in the last two years;

·         Higher share of individuals;

·         Optimization of commercial actions.

·         Improvement in shrinkage;

·         New tax framework related to ICMS ST (Tax Substitution);

Operating expenses reached 10.2%, down 20 bps from 2Q16, despite the format’s strong growth pace. The maturity of stores led to lower operating expenses due to the higher efficiency of the new format and to the greater dilution of administrative expenses.

Adjusted EBITDA amounted to R$239 million, with margin of 5.6%, up 260 bps from 2Q16^(*), reflecting the improvement in gross margin and the higher dilution of expenses, driven by the strong pace of sales growth.

^(*) Excluding non-recurring tax credits in 2Q16 of R$219 million at Multivarejo and of R$69 million at Assaí.

FINANCIAL PERFORMANCE

Financial Result

Financial result came to R$188 million, or 1.8% of net sales, down 20.7% from 2Q16.

The improvement is explained mainly by the gross debt reduction of R$440 million, as well as by the lower interest rate (14.1% in 2Q16 vs. 10.9% in 2Q17). Cost of receivables discount remained stable at 0.3% of net sales.

Net Income

Net income attributable to controlling shareholders, considering both continuing and discontinued operations, amounted to R$165 million, with margin of 1.5%, driven by the better business performance.

In the food segment, net income attributable to controlling shareholders, considering continuing operations and adjusted for other operational income and expenses, came to R$443 million, or R$343 million more than in 2Q16, led by the significant growth posted by Assaí.

Earnings per Share (EPS)

Diluted EPS was 0.58212 per common share and 0.64033 per preferred share.

Net Debt

Net debt, adjusted for not discounted receivables, amounted to R$2,380 million, improving R$888 million from 2Q16. The Company continues to strengthen its financial position, with the net debt / Adjusted EBITDA ratio reaching 0.9x in 2Q17, compared to 1.4x last year.

Gross debt stood at R$5,075 million, down R$440 million from 2Q16.

Cash balance was R$2,366 million and the balance of not discounted receivables was R$329 million, bringing total cash and cash equivalents to R$2.7 billion. Moreover, preapproved/confirmed credit lines amounted to R$1.3 billion.

Capex

Capex in the Food segment came to R$286 million, higher than in the same period last year, mainly due to the conversions of Extra Hiper stores into Assaí stores.

Three stores were converted in the quarter, besides 11 more that are undergoing conversion. By the end of 2017, the Company should conclude 16 conversions. Moreover, 3 stores were opened in the quarter, with 1 Assaí and 2 Minuto Pão de Açúcar. Assaí should close the year with 6 to 8 new stores, which includes entering two new states.

The lower maintenance and renovation capex in the quarter is due to the comparison base, since energy efficiency projects were implemented in several stores last year, resulting in fewer stores for 2017.

Continuation of the process to capture synergies in Latin America, with the following highlights:

·         Textile project in execution, with store implementation by year-end estimated at over 30 stores;

·         Joint negotiations in categories for indirect purchasing (shopping carts, baskets, plastic bags, etc.);

·         Exchange of best practices to reduce shrinkage in perishables;

·         Aliados Compre Bem Project, which already has 236 partners and aims to reach around 500 by year-end.

·         Capture of synergies expected in the total of US$ 50 million for Latin America. Attainment is progressing in line with the goal.

Strategic priorities:

1)      Focus on Food segment: Continuous investments in higher-return formats, such as Assaí and Pão de Açúcar, and intensification of store renovations;

2)      Optimization of portfolio: Focus on conversions of Extra Hiper stores into Assaí;

3)      Continuous expansion of Assaí: Total of 16 conversions and 6 to 8 new stores, with an average return of over 20%.

Guidance for 2017:

1)      Sales: continued market share gains at both Multivarejo and Assaí;

2)      EBITDA Margin⁽¹⁾: around 5.5% in the Food segment, supported by higher profitability at Assaí and stability at Multivarejo;

3)      CAPEX: approximately R$1.2 billion;

⁽¹⁾EBITDA adjusted by Other Operating Income and Expenses.

2Q17 Results Conference Call and Webcast

10:30 a.m. (Brasília) | 9:30 a.m. (New York) | 2:30 p.m. (London)

Conference call in Portuguese (original language)
+55 (11) 3193-1001 or 2820-4001

Conference call in English (simultaneous translation)
+1 (786) 924-6977

Webcast: http://www.gpari.com.br

Replay
+55 (11) 3193-1012
Access code for audio in Portuguese: 1449444#
Access code for audio in English: 2325602#

http://www.gpari.com.br

Investor Relations Contacts

About GPA: GPA is Brazil’s largest retailer, with a distribution network comprising over 2,000 points of sale as well as electronic channels. Established in 1948 in São Paulo, it has its head office in the city and operations in 20 Brazilian states and the Federal District. With a strategy of focusing its decisions on customers and better serving them based on their consumer profile in the wide variety of shopping experiences it offers, GPA adopts a multi-business and multi-channel platform consisting of brick-and-mortar stores and e-commerce operations, divided into three business units:  Multivarejo, which operates the supermarket, hypermarket and Minimercado store formats, as well as fuel stations and drugstores under the Pão de Açúcar and Extra banners; Assaí, which operates in the cash-and-carry wholesale segment; and Via Varejo’s discontinued operations, with its bricks and mortar electronics and home appliances stores under the Casas Bahia and Pontofrio banners, and the e-commerce segment. 

Disclaimer: Statements contained in this release relating to the business outlook of the Company, projections of operating/financial results, growth prospects of the Company and market and macroeconomic estimates are merely forecasts and are based on the beliefs, plans and expectations of Management in relation to the Company’s future. These expectations are highly dependent on changes in the market, Brazil’s general economic performance, the industry and international markets, and hence are subject to change.

Glossary

Company’s Business: The Company’s business is divided into two segments – Retail and Cash & Carry – grouped as follows:

Food Segment: Represents the combined results of Multivarejo and Assaí, excluding equity income (loss) from Cdiscount, which is not included in the operating segments reported by the Company. It includes retail and wholesale activities of products in general, including - but not limited to - food products, clothing, hygiene, medicines, fuels, furniture, consumer electronics and domestic utilities. Such activities are carried out both in physical and virtual establishments.

Growth and Changes: The growth and changes presented in this document refer to variations from the same period last year, except where stated otherwise.

EBITDA: EBITDA is calculated in accordance with Instruction 527 issued by the Securities and Exchange Commission of Brazil (CVM) on October 4, 2012.

Adjusted EBITDA: Measure of profitability calculated by excluding Other Operating Income and Expenses from EBITDA. Management uses this measure in its analyses as it believes it eliminates nonrecurring expenses and revenues and other nonrecurring items that could compromise the comparability and analysis of results.

Adjusted Net Income: Measure of profitability calculated as Net Income from continuing operations excluding Other Operating Income and Expenses and excluding the effects of Income and Social Contribution Taxes. Also excluded are the effects of nonrecurring direct income tax. Management uses this metric in its analyses given its belief that it eliminates any nonrecurring expenses and revenues and other nonrecurring items that could compromise the comparability and analysis of results.

CONSOLIDATED FINANCIAL STATEMENTS

1. Balance Sheet

2. Income Statement - 2Q17

2.1 Income Statement – 1H17

3. Financial Result

In the financial statements of GPA of June 30, 2017, consequent to the ongoing divestment of the interest held by GPA in Via Varejo S.A. as announced in the material fact notice of November 23, 2016, the operations of Via Varejo are treated as discontinued operations. Accordingly, net sales and other income/expense lines were adjusted retrospectively from January 1, 2015, as defined in IFRS 5 / CPC31, approved by CVM Resolution 598/09 - Sale of non-current assets and discontinued operations. Consequently, the following comments do not include the performance of Via Varejo.   

4. Net income