São Paulo, Brazil, July 28, 2016 - GPA [BM&FBOVESPA: PCAR4 (PN); NYSE: CBD] announces its results for the second quarter of 2016 (2Q16). The comments refer to the consolidated results of the Group or of its business units. All comparisons are with the same period in 2015, except where stated otherwise.

(1) Includes the results of Cnova (Cnova Brazil + Cdiscount Group); (2) Totals and percentages may not add up due to rounding. All margins were calculated as a percentage of net sales; (3) Earnings before interest, tax, depreciation and amortization; (4) EBITDA Adjusted for the total of “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses; (5) Net Income Adjusted for the total of “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses, as well as the respective effects of associated income tax.

Sales Performance

(1) Adjusted for the calendar effect of 3.2% (2Q16) and -3.6% (1Q16) at Multivarejo and 0.7% (2Q16) and -1.0% (1Q16) at Assaí; (2) Not including revenue from intercompany transactions; (3) Extra and Pão de Açúcar. Includes revenue from leasing of commercial centers; (4) Includes revenue from intercompany transactions.  

Sales Performance – Consolidated

§  In 2Q16, consolidated net sales totaled R$16.7 billion, up 4.9% after adjusting for the calendar effect, with the highlights being the solid performance by Assaí, improved sales trend at Multivarejo and the ongoing recovery at Via Varejo;

§  In the Food segment (Multivarejo + Assaí), net sales grew 11.3% adjusted for the calendar effect, which is the strongest result since 3Q14, reflecting the continued strong growth at Assaí (+37.6%) and the better sales trend at Multivarejo (+1.4%), driven by the commercial actions implemented throughout the quarter;

§  Via Varejo continued the sales recovery trend observed in prior quarters, posting its best performance since 1Q15, with growth of 0.3%, or 2.6% on a same-store basis, which translated into market share gains; 

§  Nine stores were opened in the quarter, seven of them in the food segment (five Minuto Pão de Açúcar and one Assaí and Pão de Açúcar each), and one Casas Bahia and Ponto Frio store each. A total of 59 stores were opened in the last 12 months.

Food Segment (Multivarejo + Assaí)

§  Consolidated net sales in the quarter totaled R$9.7 billion, up 11.3% after adjusting for the calendar effect. This result reflects the combination of the solid performance by Assaí, which has been gradually expanding its share of food segment sales (34%), and the sales volume growth at Multivarejo. The opening of 51 stores in the last 12 months also helped drive sales growth in the period;

§  On a same-store basis and adjusted for the calendar effect, food segment sales grew 7.1%, the highest since 3Q14. This expansion was mainly driven by sales volume growth at Multivarejo during the quarter, thanks to new commercial actions, and by the continued acceleration of sales at Assaí;

§  Significant growth in the food category at Multivarejo, which registered a stronger sales trend in virtually all banners. Worth noting was the gradual improvement in sales and volume at the Extra banner during the quarter, driven by the new commercial actions launched at hypermarkets and supermarkets:

i)    “1,2,3 Savings Steps": campaign launched in April that offers progressive discounts to customers, starting with 20% on the purchase of the first unit and increasing to 33% on the third unit, to meet all their food, home care and personal care needs.

ii)  "Hyper-fair": event launched in May focusing on offering competitive daily prices for the Fresh Produce category; and

iii) "Lowest Price": campaign launched in June, which offers the lowest price for a selection of products that represent the basic everyday needs of consumers.

§  As in prior quarters, Assaí posted robust net sales growth of 37.6% adjusted for the calendar effect, which is the best performance since 2Q14, reflecting the strong double-digit same-store sales growth, driven by the correct positioning of the format in the current economic scenario and by organic growth. One store was opened in the quarter, the first in the North region (Manaus), bring the total store openings in the last 12 months to 10. In addition, 2 Extra Hiper stores are in the process of conversion as part of the banner's store expansion plan for the year.

Via Varejo

§  On a same-store basis, net sales in 2Q16 advanced 2.6%. Total sales grew 0.3%, still affected by the store closures in 2H15 and 1Q16. Sales growth in the period was supported by the implementation of strategic actions, which included: (i) banner conversions (growth of 1,130 bps above Via Varejo’s average); (ii) mobile store-in-store (growth of 250 bps above Via Varejo’s average); (iii) solid performance of service revenue; and (iv) effective and unique product assortment at stores, giving the sales teams the tools needed to leverage the sales conversion rate;

§  Via Varejo remains strongly focused on improving sales and consistently gaining market share. According to the Monthly Retail Survey (PMC) published by the IBGE, the furniture and electronics/home appliance market in April and May contracted by 6.7% compared to the same period in 2015, which, given the positive growth in net sales in 2Q16, suggests that Via Varejo has been gaining structural market share in both the specialty⁽¹⁾ and total⁽²⁾ markets, bringing the share in both markets to levels similar to the highest market share in the history of Via Varejo;

§  For the coming quarters, Via Varejo will continue to focus on capturing operating efficiency gains at its stores, while advancing on the implementation of strategic projects, on improving its customer service and on monitoring its cost and expense structure in order to optimize its results and profitability for fiscal year 2016.These operational drivers, combined with the strategy based on price competitiveness and offering an effective product assortment, will further leverage its competitive advantages and the strength of the Casas Bahia and Pontofrio brands.

Cnova Brasil

§  GMV in 2Q16 amounted to €396 million (R$1,567 million), which corresponds to a reduction of 19.7% per year in constant currency. In the same period, GMV’s share of marketplace reached 16.6% (+780 bps in the annual comparison). On June 30, 2016, we had over 3,500 vendors in the marketplace.

§  Traffic in 2Q16 grew 21.4% a year to 257 million visits, with mobile devices accounting for 43.6% of total traffic.

§  Improvements in customer service during the quarter include lower stockout rate (8%) of top selling products, better call center service and conclusion of ERP migration.

(1) Specialty market: Includes specialty retailers only.

(2) Total market: Includes specialty retailers, supermarkets and purely online competitors.

Operating Performance

(1)EBITDA adjusted for “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses.

The Company's gross margin reached 25.4% in the quarter due to the business mix effect and recognition of tax credits.  Excluding the effect of these credits, gross margins of the businesses were as follows: 

(i)     Assaí: gross margin remained stable in relation to 2Q15 (13.8%);

(ii)    Multivarejo: decrease of 160 bps in gross margin due to efforts to drive competitiveness at Extra;

(iii)   Via Varejo: decrease of 70 bps due to efforts to increase competitiveness, compensated by greater efficiency in services; 

The increase in selling, general and administrative expenses was 11.8% in 2Q16, mainly due to the business mix effect: growth of 33.1% in Assaí due to strong store expansion in the last 12 months; increase of 7.9% at Multivarejo, lagging inflation in the period; and increase of 10.1% at Via Varejo, impacted by the end of tax relief on payroll.

The Company incurred other operating income and expenses of R$481 million in the quarter. Most of this amount is related to: (i) additional provision for tax contingencies such as PIS and COFINS, income tax and ICMS, after a review by legal advisors, in the amount of R$184 million; (ii) expenses related to Cnova investigation (R$127 million); (iii) integration and restructuring expenses (R$75 million); and (iv) asset write-offs (R$57 million). Adjusted for these effects, EBITDA stood at R$760 million, with margin of 4.6%.

 (1) EBITDA adjusted for “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses

Adjusted EBITDA at Multivarejo stood at R$384 million in 2Q16, with margin of 6.0%, due to the following factors:

§  Gross Profit of R$1,863 million, with margin of 29.2%:

(i)      Tax credits were recognized, positively impacting gross margin by 250 bps vs. 2Q15;

(ii)     Excluding the effects of these tax credits, the decrease in gross margin was 160 bps, mainly due to efforts to drive competitiveness at Extra. In 2Q16, the banner launched new commercial actions: “1,2,3 Savings Steps”, “Hyper-fair” and “The Lowest Price”. These efforts to increase competitiveness have already positively affected the growth in volume and market share and these results should intensify over the coming quarters.

§  Selling, general and administrative expenses increased by 7.9% from 2Q15, below inflation in the period. The main impacts were:

(i)      Store expenses remained stable (down 0.1%) due to various efficiency projects implemented at the end of last year and in the first half of 2016, with a reduction of 11.5% in marketing expenses and 1.5% in store personnel expenses, and increase in rental and utilities expenses below inflation (+1.4% and +0.9% respectively)

(ii)     Negative impacts mainly due to:

a.    The increase of R$10 million due to the opening of 41 stores over the last 12 months;

b.   The growth of R$53 million due to higher provisioning for labor contingencies;

c.   The higher levels of default in rental receivables of commercial centers, leading to an increase of R$20 million; 

d.   The increase of R$18 million in administrative expenses, mainly related to the projects to improve operating efficiency.

Other Operating Income and Expenses in the quarter totaled R$213 million and are mostly related to the additional provision for tax contingencies (approximately R$150 million), as mentioned in the section Operating Performance - Consolidated, on page 5, as well as restructuring expenses and asset write-offs. Adjusted for this effect, EBITDA stood at R$384 million, with margin of 6.0%.

(1) EBITDA adjusted for “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses

Assaí registered accelerated growth in net sales, which stood at 36.9% in 2Q16, or 37.6% when adjusted for the calendar effect. The banner's consistent performance reflects: (i) strong double-digit same-store sales growth; (ii) strong expansion with 10 new stores opened in the last 12 months; and (iii) the continued increase in customer traffic in the Cash & Carry segment. This solid performance resulted in a higher share of Assaí in the Food segment sales, in which the format already accounts for the highest share (34% in 2Q16).

Gross margin increased 160 bps mainly due to the recognition of tax credits, in addition to the impact of store maturation and evolution of client mix. Excluding the effects of tax credits, gross margin would have remained stable compared to 2Q15 (13.8%).    

Selling, general and administrative expenses as a percentage of net sales decreased by 30 bps, mainly due to cost control and higher operating leverage.

Other Operating Income and Expenses in the quarter totaled R$39 million, mainly related to the additional provision for tax contingencies, as explained in the section Operating Performance – Consolidated, on page 5. Adjusted for this effect, EBITDA stood at R$168 million.

Adjusted EBITDA stood at R$375 million in 2Q16, with margin of 8.7%, due to the following factors: 

§  Gross margin of 38.4%

(i)    Tax credits were recognized, positively impacting gross margin by 650 bps compared to 2Q15. Gross profit in 2Q16 reflects the competitiveness strategy and consistent market share gains captured since 4Q15;

(ii)   Positive impact of 120 bps due to the end of tax relief on payroll in 2Q16.

(iii)  In January 2016, Via Varejo started to pay PIS and Cofins taxes on products that previously benefitted from the Lei do Bem tax incentive. The tax incentive benefited technology and IT products (e.g. mobile phones and computers) priced at up to R$1,500.00. The additional taxation in 2Q16 produced a negative impact of 240 bps on EBITDA margin.

§  Selling, general and administrative expenses as a percentage of net sales increased 270 bps:

(i)    Negative impact of 250 bps due to the impact of the end of tax relief and collective bargaining on payroll;

;

Financial Result

The Company's cash management strategy is determined by the following variables: (i) cash requirements; (ii) cost of advancing; and (iii) analysis of other lines of credit and the costs involved determined significant variations in the volumes of receivables advanced in the first half of the year. For better comprehension of the financial results, eliminating possible distortions between the quarters, the following explanations consider the main variations in 1H16 compared to 1H15.

In 1H16, net financial expense increased 29.8% to R$907 million, above the 13% variation in interest rates (measured by average CDI) in the period. The main variations in net financial result were:

§  Net debt charges increased R$98 million or 40.0%, reflecting the lower average cash balance in the period, due to the policy of advancement of receivables and specific payments at Multivarejo (Morzan indemnity and other indemnities related to periods before the association with Casas Bahia) of approximately R$400 million, among other factors;

§  Increase of R$9 million or 1.9% in the cost of advancing these credit card and payment book receivables, significantly lower than the increase in CDI, due to the lower advanced volume as a result of the decrease in sales in non-food categories compared to the same period the previous year, in addition to the maintenance of approximately R$2 billion in credit card receivables that were not advanced.

§  The change of R$103 million in Restatement of Other Assets and Liabilities is mainly related to additional expenses with guarantees, interest, fines and the negative effect of the Cdiscount financial result in 1H16, in addition to positive impacts in 1H15 from the monetary restatement of taxes recoverable and restatements of real estate projects (INCC).

Net Income

(1) Net Income adjusted for “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses, excluding the effects of Income and social contribution taxes.

Net income attributable to controlling shareholders, adjusted for other operating income and expenses, totaled R$3 million.

In the food segment, note the 57.3% net income growth at Assaí, which is higher than the banner's sales growth in the quarter. This result contributed to the net income attributable to controlling shareholders in the Food segment, which stood at R$93 million after adjusting for other operating income and expenses.

Via Varejo's net income adjusted for other operating income and expenses amounted to R$19 million.

Indebtedness

The Company ended 2Q16 with a strong reserve of cash and financial investments of R$3.7 billion, and a balance of approximately R$2 billion in unsold receivables with immediate liquidity if necessary.

Gross debt stood at R$6.5 billion at end-June 2016, similar to the level at end-June 2015. Note that the Company has approximately R$1.3 billion in pre-approved/confirmed credit facilities.

The R$1.6 billion increase in net debt⁽²⁾ at end-June 2016 compared to end-June 2015 mainly reflects the increase in the debt at Cnova, of approximately R$1.1 billion, and specific payments at Multivarejo in the amount of approximately R$400 million, as described in the section “Financial Result”, on page 10.

Consequently, net debt⁽²⁾ stood at R$3.3 billion at end-June 2016, with the net debt⁽²⁾/EBITDA⁽¹⁾ ratio increasing from 0.38 times in 2Q15 to 1.71 times in 2Q16.

(1)  EBITDA in the last 12 months.

(2)  Includes unsold credit card receivables of R$1,997 million in 2Q16 and R$158 million in 2Q15.

Simplified Cash Flow Statement

The Company's cash stood at R$3.716 billion at the end of 1H16. Changes from the same period the previous year were mainly due to the following factors:

§  EBITDA impacted by more cautious consumer behavior, mainly impacting non-food sales; 

§  The cash management strategy adopted by the Company led to lower volume of receivables advanced and negatively impacted working capital by approximately R$1.8 billion in the quarter. Note that this variation was also impacted by the significant improvement in the gap between inventories and suppliers over the course of 2015;

§  Specific payments at Multivarejo of approximately R$400 million, as mentioned in the section "Financial Result”, on page 10;

§  Deterioration of Cnova debt by approximately R$1.1 billion.

            Capital Expenditure (Capex)

Consolidated capex in the quarter totaled R$293 million, of which 69% was invested in the Food segment. 

In terms of store openings in the period, the Company opened five Minuto Pão de Açúcar stores and one Assaí, Pão de Açúcar, Casas Bahia and Ponto Frio store each.

In the Food segment, it is important to highlight the opening of the first Assaí store in the North region. Another 10 Assaí stores are under construction, of which two are Extra Hiper stores in the process of being converted to Assaí, which will serve as pilots for additional conversions in the coming years.

Via Varejo will continue to focus on implementing strategic projects: i) store renovations for the new store-in-store mobile concept (307 stores)⁽¹⁾ and; ii) conversion to Casas Bahia stores (82 stores) ⁽¹⁾.   

(1)   In the last 12 months.

Appendix I - Cnova Investigation

As announced by the Company and by its subsidiary Cnova NV, the investigation of Cnova Brasil has been completed. The total effect of adjustments made at Cnova N.V. was a negative impact of R$557 million, including adjustments resulting from the investigation launched on December 18, 2015, the effects of the change in accounting practices and the reassessment of the recoverability of deferred taxes at Cnova N.V., Cnova Brasil and Cdiscount. In the Company's consolidated financial statements for the fiscal year ended December 31, 2015 and disclosed on February 24, 2016, some of these effects had already been identified and recorded.

The following table reconciles the final amounts and the additional effects reported in these restated financial statements for December 31, 2015, as well as the allocation of effects by fiscal year. The amounts below are in R$ million:

(i)         Adjustments identified by the investigation team and reported in the financial statements, originally published on February 24, 2016, disclosed in Note 1.4;

(ii)        Change in accounting practice for booking storage costs under inventory, already reported in the financial statements originally published on December 31, 2015;

(iii)       On December 31, 2015, the Company had partially written off the deferred income tax of Cnova Brasil based on the facts and circumstances available at the time;

(iv)       Effect on Shareholders Equity as of 12/31/2015 restated as of 7/27/2016.

The figures in this earnings release for 2Q16, as well as figures presented in comparison with 2Q16 figures, already reflect the restatement of the Company's financial statements as a result of the adjustments at Cnova.

The impacts from the restatements of adjustments made in 2015 and 2016 by quarter are presented below, in millions of R$: