Gross sales revenue reached R$ 14.919 billion

Gross sales revenue up 8.8% in 2Q13, with adjusted EBITDA margin at 7.0%

Sales Performance

Consolidated gross sales revenue totaled R$14.919 billion, up 11.2% over 2Q12. GPA Food’s gross revenue increased 8.8% and Viavarejo’s increased 14.2%.

The Company’s focus on expansion enabled the inauguration of 33 new stores in the quarter, of which 23 Minimercado Extra, four Casas Bahia three Assaí, two Pão de Açúcar and one drugstore. During the quarter, over 29,000 square meters were added to the GPA Consolidated’s sales area, which represents an increase of 1.0% over the end of March. From January to June, the area growth was at 2.2%. The company reaffirms its commitment to the area expansion guidance of above 6% for GPA Food and between 2% and 3% for Viavarejo for 2013. Such guidance does not consider the settlement agreement (Termo de Compromisso de Desempenho ‐ TCD) with Brazil’s antitrust agency CADE (Conselho Administrativo de Defesa Econômica) – more information about TCD on page 7. Another highlight in the quarter was the performance of Nova Pontocom, which once again posted double-digit growth.

In 1H13, excluding the effect of early Easter, gross sales totaled R$ 29.904 billion, up 10.5% over 1H12.

Same-store sales increased 7.3% in 2Q13, driven by the accelerated same-store growth of Viavarejo in the past quarters.

Sales of the Group’s food categories posted same-store growth of 4.8%, impacted by the early Easter in 2013, which was celebrated in the first quarter. The Company estimates that the impact of the early Easter in the sales growth, in 2Q13, was approximately 300 basis points. Considering the calendar effect, same-store sales would increase by 7.8%, above inflation. Considering the six-month period, in which the calendar effect is not valid, same-store growth was 7.2%, which represents a real growth of 0.5% i.e. deflated by the IPCA inflation index for the last 12 months.

Minimercado Extra and Assaí banners posted double-digit growth in same-store sales.

Sales of the Group’s non-food categories, which include Viavarejo and the non-food categories of Extra Hiper, posted same-store growth of 9.3%, spurred by Viavarejo’s performance. The bricks-and-mortar stores posted ‘same‐store’ sales growth of 9.5%, fueled by the effective marketing campaigns combined with the commercial strategy, in addition to sales related to Mother’s Day. Nova Pontocom posted growth of 26.5% in the quarter, thanks to a price repositioning strategy in its different banners. In real terms, considering the inflation in the electronics, furniture and mattress categories in the past 12 months, as released by the Brazilian Institute of Geography and Statistics (IBGE), weighted by the product mix of the bricks-and-mortar stores and Nova Pontocom, gross revenue sales grew 8.7%.

In the second half of June, popular uprisings in Brazil forced the Company to shut certain stores for some hours at specific periods. The Management believes that the impacts on sales and other expenses were minor and did not significantly affect the 2Q13 performance.

Grupo Pão de Açúcar, through its banners Casas Bahia, Pontofrio and Extra Hiper, participate in the federal government’s ”Minha Casa Melhor” program, launched in June, which offer the beneficiaries of the “Minha Casa, Minha Vida” program a special credit facility to acquire furniture and home appliances. All of the Company’s businesses that sell the items included in the product basket subsidized by the credit facility are committed to meeting the demand of these new consumers.

Operating Performance

(1)      As of 4Q12, the results of Equity Income and Other Operating Income (Expenses) were included along with Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM).

(2)      As from 1Q13, the depreciation recognized in the cost of goods sold, essentially consisting of the depreciation of distribution centers, began to be specified in the calculation of EBITDA.

(3)      The explanation is available on page 11.

The Company’s gross margin increased by 30 basis points, reflecting the price repositioning in food retail, which was supported by a reduction in expenses. As in 1Q13, Assaí banner adopted more competitive prices in the new stores, in line with the banner’s strategy to generate traffic.

In terms of operational efficiency gains, the highlight was the reduction in the ratio between Viavarejo’s selling, general and administrative expenses and net revenue, from 23.1% in 2Q12 to 21.5% in 2Q13, due to the gains of synergy from the Productivity Plan and the higher rationalization of staff, marketing and IT expenses.

In 2Q13, the Company incurred in Other Operating Expenses and Revenues of R$ 350 million. It is worth mentioning the provisions for tax risks (R$ 163 million), effects related to the association between Pontofrio and Casas Bahia ^(*) (R$ 67 million), restructuring expenses and results from fixed assets (R$ 51 milion) and provisions related to labor claims and others (R$ 69 million).

EBITDA totaled R$ 609 million, due to the recognition of Other Operating Expenses and Revenues, as mentioned above. Adjusted EBITDA, which excludes such Other Operating Expenses and Revenues, would be R$ 958 million, up 37.6%, with ajusted EBITDA margin 7.2%.

In Viavarejo, the further gains of synergies and the implementation of new processes and elimination of operating expenses resulted in an EBITDA growth of 61.5%.

The six-month analysis, which excludes the calendar effect of Easter and the expense mentioned above, EBITDA increased by 24.7%, to R$ 1.829 billion.

(*) Refers to the effects related to the project by external consultants especially hired to analyze the accounting entries related to the association between Pontofrio and Casas Bahia.

GPA Food (Retail and Cash-and-carry stores)

Food Retail (Extra and Pão de Açúcar)

Gross margin decreased by 10 basis points, while selling, general and administrative expenses accounted for 19.7% of net sales revenue, down 30 basis points.

EBITDA was impacted by Other Operating Expenses and Revenues totaling R$ 261.0 million. EBITDA totaled R$ 204 million, down 53.3% over 2Q12. EBITDA adjusted by the above-mentioned effect was R$ 465 million, with margin at 7.9%. Compared to 2Q12, growth would be 8.6%, higher than revenue growth.

Management expects futher reductions on operating expenses over the year which may be converted into lower prices for consumers to increase store traffic. With such strategy, the Company’s market share is expected to increase over the next quarters.

GPA Malls & Properties launched a new brand in June, Conviva, which is based on the neighborhood malls concept and aims to fill the gap between street stores and large commercial centers. Its first project, Conviva Américas, is anchored by an innovative concept of a Pão de Açúcar store, in addition to major sports, baby and gym retail chains, and another 35 satellite stores, including a food court. Conviva attracts customer traffic for the Pão de Açúcar store while diversies the group’s revenue with rental revenue. The project has a gross leasable area of 12,500 square meters. The Company expects to deliver at least 35,000 square meters of new gross leasable area in commercial centers this year.

Cash-and-carry stores (Assaí)

Gross sales revenue totaled R$ 1.558 billion, up 36.4% over 2Q12, while EBITDA increased 4.6%, with margin at 3.4%. The first stores launched in new states demand more investments in marketing and more competitive prices, which lead to a natural margin contraction in the first months of operation at the newly opened stores in these regions. The success of this strategy is reflected in the sales performance of the recently opened stores, which exceeded initial expectations.

Keeping the aggressive store-opening plan for 2013 and, as already mentioned in 1Q13, the Company in 2Q13 delivered three new Assaí stores - in Ceará, Mato Grosso do Sul and Paraná. In the first six months of 2013, six new stores were opened, of which five were the first stores in their respective states. These six new stores represent 33,160 square meters of sales area and 74,200 square meters of built-up area. In the last 10 months, Assaí doubled the number of states in which it operates, from six to 12.The inauguration of stores in new regions was concentrated in the first half and other eight stores will be delivered in the second half of the year.

The increase in operating expenses continues to lag behind revenue growth. The low-expense business model sustains the more competitive pricing strategy. Management believes that this model will bring operating expenses down to below 10% of net revenue in the medium term.

Electronics and home appliances (Viavarejo bricks-and-mortar stores and Nova Pontocom)

The operational improvement was coupled with the acceleration in sales. The business posted higher sales growth than in previous quarters. The 180-basis-point increase in EBITDA margin is due to the gain in gross margin, which increased due to a more efficient logistics and increased penetration of sale of services, as well as a reduction in selling, general and administrative expenses as percentage of net revenue.

Furthermore, EBITDA was negatively impacted by Other Operating Expenses and Revenues, which totaled R$ 90 million, mainly due to the adjustments recommended by external consultants especially hired to analyze the accounting entries related to the association between Pontofrio and Casas Bahia. Adjusted EBITDA margin, excluding  the effects mentioned above, would be 7.4% in the 2Q13, up 320 basis point over 2Q12.

The 160-basis-point decrease in selling, general and administrative expenses as a percentage of net sales revenue was due to the synergies captured with the Productivity Plan, mainly due to the greater rationalization of personnel, marketing and IT expenses.

As a result of the settlement agreement (Termo de Compromisso de Desempenho ‐ TCD) with Brazil’s antitrust agency CADE (Conselho Administrativo de Defesa Econômica), 74 stores are in the process of being divested, which together represent approximately 3% of Viavarejo’s gross sales in 2012, as mentioned in a material fact released on 04/17/2013.  The Company will keep its shareholders and the market informed about any developments related to the compliance with the TCD.

In 1H13, EBITDA totaled R$ 701 million, up 37.8% over 1H12. EBITDA margin increased 110 basis points to 5.8%. Adjusted by Other Operating Expenses and Revenues, EBITDA would be R$ 776 million, with margin at 6.4%. The Company reaffirms its EBITDA margin guidance above 6.6% in the year.

Indebtedness

Net debt, including Viavarejo’s payment book operation, totaled R$ 4.168 billion at the end of June. Maturities of loans, financing and debentures are still concentrated in the long term, of which 70% mature in over 12 months.

In 2Q13, net reserves were down by R$ 900 million for the purpose of debt payment, which decreased by the same amount. The net debt/EBITDA ratio stood at 1.16x on 06/30/2013. At the end of June, the Company had cash reserves close to R$ 5 billion. For more information, see the Cash Flow section.

Financial Result

The ratio of net financial income to net revenue declined during yet another quarter, from 2.4% to 2.2% in 2Q13, for a total net expense of R$ 300 million. Noteworthy was the reduction in expenses with the discount of receivables and charges on net debt, directly resulting from the lower annualized Selic rate in the period, of 7.32% and from the control on payment conditions offered to clients. The Company’s net debt also decreased, due to the cash flow from the food and electronics and home appliances operations.

As in previous quarters, the Company continues to sell its credit card receivables directly to acquirers or banks, without any right of recovery or related obligation. The volume of discounted receivables amounted to R$ 13.742 billion.

Despite the recent increase in the expectations for the Selic base interest rate, the Company reaffirms its guidance released on 04/30/2013, according to which net financial expenses should represent at most 2.3% of the net sales revenue in the consolidated result. In GPA Food, the highest level expected for the year is 1.8%, while in Viavarejo the ceiling is 2.9%. In all cases, the numbers forecast for 2013 are lower than those reported in 2012.

Net Income

Income before income tax totaled R$ 96 million, down 56.5% over the same period in 2012.

Adjusted net income, which excludes Other Operating Expenses and Revenues, as explained on page 4, was R$ 327 million, up 129.1% over 2Q12.

Adjusted net income in 1H13 increased 102.3% to R$ 610 million. The increase is due to sales growth, the brisk pace of store openings at GPA Food and improved profitability at Viavarejo. The control over financial expenses also positively impacted the first half results.

Simplified cash flow

At the end of 2Q13, the cash position was R$ 5.037 billion. The decrease of R$ 965 million was due to the payment of loans, debentures and dividends. As mentioned in prior quarters, the Company did not have to refinance or hire new debt operations.

The cash flow from operating activities was R$ 887 million, positive in both GPA Food and Viavarejo, even discounting the invested amounts, mostly in new stores, which demonstrates the Company’s ability to accelerate its organic growth without hiring new debt.

Capex

Consolidated investments totaled R$ 457 million in the quarter, up 16.6% over 2Q12, mainly due to the opening of new stores and land acquisition, for which 44.0% of the investments of the period were directed. Compared to the same period in 2012, the amount was 29.7% higher. As explained in the previous sections, a total of 33 new stores were opend in 2Q13: 23 Minimercado Extra, four Casas Bahia three Assaí, two Pão de Açúcar and one drugstore.

Investments in GPA Food totaled R$ 375 million, up 17.7% over 2Q12. In 2Q13, 49.2% of the total was invested in the opening of new stores and land acquisition, a result of the Company’s strategy of increasing organic growth for this operation, which will deliver 500 new stores by 2015.

For 2013, the Company expects to invest up to R$ 2 billion.

Dividends

Interim dividends for the second quarter of 2013 will total R$ 33.1 million, of which R$ 21.3 million related to preferred shares and R$ 11.8 million to common shares. Shareholders of record on July 31, 2013 will be entitled to receive dividends. As of August 01, 2013, the shares will trade ex-dividends until the payment date. The prepayment of dividends for 2Q13 will be on August, 13, 2013.

Appendix I – Definitions used in this document

Company’s Business: The Company’s business is divided into four segments – food retail, cash and carry, electronics and home appliances retail (bricks and mortar) and e-commerce – grouped as follows:

Same-store sales: The basis for calculating same-store sales is defined by sales registered in stores open for at least 12 consecutive months. Acquisitions are not included in the same-store basis in the first 12 months of operation.

Growth and changes: The growth and changes shown in this document refer to the variation compared to the same period in the previous year, except when indicated otherwise.

EBITDA: As of 4Q12, the results of Equity Income and Other Operating Income (Expenses) were included along with Total Operating Expenses in the calculation of EBITDA. Thus, the calculation of EBITDA complies with Instruction 527 dated October 4, 2012, issued by the Securities and Exchange Commission of Brazil (CVM). As from 1Q13, the depreciation recognized in the cost of goods sold, essentially consisting of the depreciation of distribution centers, began to be specified in the calculation of EBITDA.

Adjusted EBITDA: Profitability measure calculated by EBITDA excluding Other Operating Revenues and Expenses. Management uses this measure because it reflects more faithfully the result of the Company's normal operations, eliminating, thus, extraordinary expenses and revenues and other extraordinary entries that may compromise result’s comparability and analysis.

Adjusted net income: Profitability measure calculated by net income excluding Other Operating Revenues and Expenses, discounting the effects on Income Tax and Social Contribution. Management uses this measure because it reflects more faithfully the result of Company's normal operations, eliminating, thus, extraordinary expenses and revenues and other extraordinary entries that may compromise result’s comparability and analysis.