Net sales grew 8.1%⁽¹⁾ driven by the 25.2%⁽¹⁾  increase at Assaí and the recovery at the Pão de Açúcar banner

Adjusted EBITDA in the Food segment reached R$569 million, up 17.3%, with margin expansion of 40 bps to 5.2%

Operating expenses grew below inflation, with dilution of 90 bps compared to 3Q16

Consolidated net income attributable to controlling shareholders of R$32 million, with margin of 0.3%

Operating Highlights

Multivarejo:

●        Continued market share^(*) gains, marking 12 consecutive quarters of gains. The highlight was the sales volume recovery at Pão de Açúcar and Extra Hiper, that continued to deliver the best performance among formats;

●        Decrease of 4.4% in operating expenses, leveraged by the energy efficiency and productivity initiatives;

●        Adjusted EBITDA margin of 5.5%, expanding 50 bps from 3Q16 with growth of 7.7% in Adjusted EBITDA affirming the better trend since the beginning of the year;

●        The “My Discount” app reached more than 3 million downloads, of which more than 1 million were new loyal customers. The initiative has already reached around 20% of the customers at Extra and over 25% at Pão de Açúcar.

Assaí:

●        Strong net sales growth of 25.2%⁽¹⁾  and 7.7%⁽¹⁾⁽²⁾  in the same-stores concept, maintaining consistent customer and volume growth in recent quarters;

●        Operating expenses stable as a percentage of net sales in relation to 1H17, although already includes the expenses related to conversions and openings expected for 4Q17 (11 stores);

●        Adjusted EBITDA margin stood at 4.8% with 40 bps improvement and growth of 35.9% in Adjusted EBITDA.

Financial Highlights

●        The financial result corresponded to 1.4% of net sales, improving 35.0% from 3Q16;

●        Net income attributable to controlling shareholders was R$32 million with margin of 0.3%, highlight to the 73.6% improvement at Assaí;

●        Financial capacity remains robust: Net debt⁽³⁾ reduction of R$532 million vs. 3Q16. The net debt⁽³⁾/EBITDA ratio fell to 1.0x, from 1.3x in the same period last year. Ratings reaffirmed by S&P (brAAA) and Fitch (AAbra).

Outlook

●        Strategic priorities: (i) focus on and strengthening of Food segment, (ii) sales growth above the industry average, supporting market share^(*) gains, (iii) continued expansion of Assaí format, and (iv) optimization of the store portfolio;

●        Economic environment and business evolution: Brazil’s high unemployment and weak consumer spending challenge the recovery of the retail industry. However, for the past 18 months, GPA has outperformed the industry average (ABRAS⁽⁴⁾ and IBGE⁽⁵⁾), confirming the market share^(*) gains by Extra Hiper and Assaí, as well as the stability in other segments.

 ^(*) According to Nielsen data for each segment. ⁽¹⁾Net sales adjusted for the calendar effect. (2) Includes converted stores, which contributed 290 bps in 3Q17. (3) Includes non-discounted credit card receivables of R$837 million in 3Q17 and R$402 million in 3Q16. (4) Brazilian Supermarkets Association. (5) Monthly Retail Survey (PMC) conducted by IBGE.

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 ^(*) According to Nielsen data for each segment. ⁽⁶⁾ EBITDA adjusted by Other Operating Income and Expenses, excluding non-recurring tax credits.

Ronaldo Iabrudi, CEO of GPA

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SALES PERFORMANCE

Net sales amounted to R$10.9 billion, growing 8.1%⁽¹⁾  vs. 3Q16, explained by:

●    Strong sales growth at Assaí of 25.2%⁽¹⁾  and of 7.7%^{(1) (2)}  on a same-store basis. Despite the sharp deflation in the period, Assaí posted its strongest combined growth in sales volume and customer traffic of recent quarters;

●    Multivarejo reached same-store sales growth of 0.6%⁽¹⁾ . Sales volume recovery at the Pão de Açúcar banner was the highlight. Extra Hiper continued to deliver the best performance among formats, with market share^(*) gains;

●    Acceleration of store conversions: 4 stores converted in the quarter, totaling 9 stores since 4Q16, which registered revenue growth of around 3.0x;

●    Multivarejo and Assaí continued to gain market share^(*) in the quarter.

At Multivarejo, net sales reached R$6.2 billion in the quarter and same-store sales growth was 0.6%⁽¹⁾ , with sales performance improving significantly over the quarter. The highlights were: (i) the recovery in performance at the Pão de Açúcar banner, (ii) Extra Hiper maintained the best performance among banners, and (iii) continued market share^(*) gains in 2017 in relation to 2016.

The Pão de Açúcar banner posted recoveries in sales and volume, reflecting the initiatives implemented since end-2Q17, such as (i) reinforcing the loyalty program with the “My Discount” program, (ii) the promotional action “Collect & Win”, and (iii) the strengthening of iconic products with more attractive pricing.

In addition, the banner launched a store-renovation plan, with the expectation of renovating around 50 stores by year-end, with 11 full renovations and 39 light renovations.

At Assaí, net sales amounted to R$4.7 billion, advancing 25.2%⁽¹⁾  vs. 3Q16. On a same-store basis, Assaí net sales grew 7.7%⁽¹⁾⁽²⁾ . Despite the intense food deflation (the food at home component of IPCA inflation went from 16.3% in 3Q16 to -4.5% in 3Q17) in important categories, such as Commodities, Dairy, Meat and Produce, Assaí delivered sales volume growth on the prior-year period and continuous improvement in customer traffic.

The 17 stores opened in the last 12 months added around R$900 million of gross sales in the quarter, demonstrating the success of the expansion program and the strong and rapid adherence of customers to Assaí's value proposition, especially in regions new to the banner.

Converted stores delivered a better-than-expected sales multiple of around 3.0x, confirming the success of the locations/regions selected under the project to optimize the store portfolio.

In the quarter, Assaí reached 115 stores and accounted for 43.0% of GPA Food’s total net sales, an increase of 600 bps on the prior-year period. The Assaí format continued to capture market share^(*) gains in the quarter, of around 330 bps compared to the same period last year.

^(*) According to Nielsen data for each segment. ⁽¹⁾ Net sales adjusted for the calendar effect. ⁽²⁾ Includes converted stores, which contributed 290 bps in 3Q17.

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OPERATING PERFORMANCE BY BUSINESS

Multivarejo

Gross profit reached R$1,663 million, with margin of 26.7%, in line with the year-ago period, due to the maintenance of commercial strategies and the stability in shrinkage levels and logistics costs.

Selling, general and administrative expenses amounted to R$1,348 million, decreasing 4.4% compared to 3Q16. The main initiatives explaining the lower expenses were:

·         Higher efficiency in headcount due to the multi-functionality, flexibility and process-review initiatives at stores, as well as the variable compensation model, which generated productivity gains;

·         Expenses with electricity improved vs. 3Q16 due to the roll out of the energy optimization projects

·         The reduction in stores operating and general expenses

Other Operating Income and Expenses, which amounted to R$130 million, were mainly related to restructuring and the gains/losses from property, plant and equipment, which amounted to R$80 million. In addition, state tax liabilities of R$30 million were included in the Special Installment Program (PEP).

Adjusted EBITDA amounted to R$345 million in the period, growing 7.7%, despite the smaller store portfolio (mainly due to the closure of 15 Extra Hiper stores for conversion). Adjusted EBITDA margin stood at 5.5%, expanding 50 bps from 3Q16.

Assaí

Gross profit reached 15.0%, expanding 50 bps from 3Q16, basically explained by:

●        Joint commercial actions with suppliers targeting small merchants;

●        Development of other categories to offset the deflationary impact;

●        Maintenance of low shrinkage levels;

●        Maturation of the store park;

Operating expenses stood at 10.2%, in line with 1H17, despite the accelerated pace of organic expansion and conversions. The expectation of 11 openings in 4Q17 (of which 8 conversions and 3 organic) impacted 3Q17 with the operational expenses inherent to the expansion.

Adjusted EBITDA reached R$225 million, with increase of 35.9%. Adjusted EBITDA margin stood at 4.8%, expanding 40 bps vs 3Q16, reflecting the gross margin expansion and contention of operating expenses.

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FINANCIAL PERFORMANCE

Financial result

The financial result reached  R$154 million, down of 35.0% from the year-ago period. As a percentage of net sales, the result corresponded to 1.4%, improving 90 bps.

The improvement is explained by (i) the gross debt reduction of R$767million, (ii) the lower interest rates (14.1% in 3Q16, vs. 9.2% in 3Q17), and (iii) the reduction in cost of receivables discount of 20 bps as a percentage of net sales.

Net income

Net income attributable to controlling shareholders, considering continuing and discontinued operations, came to R$32 million, with margin of 0.3%, an increase of approximately R$ 150 million compared to 3Q16.

In the Food segment, net income attributable to controlling shareholders from continuing operations, adjusted for other income and expenses, amounted to R$137 million, increasing four times over 3Q16, with the highest contribution coming from Assaí.

Earnings per share

Diluted EPS was 0.10880 per common share and 0.12006 per preferred share.

Net debt

Net debt, adjusted for non-discounted receivables, amounted to R$2,604 million, a reduction of R$532 million from a year earlier. The net debt / adjusted EBITDA ratio stood at 1.0x in 3Q17, down from 1.3x a year earlier.

Gross debt stood at R$4,708 million, down R$767 million from 3Q16.

The cash balance was R$1,266 million and the non-discounted receivables balance was R$837 million, for total available resources of R$2.1 billion, as well as the preapproved/confirmed credit facilities of R$1.1 billion.

The agencies S&P Global Ratings and Fitch Ratings reaffirmed the Company’s ratings of ‘brAAA stable’ and ‘AA(bra) stable,' respectively, which reflects the continued prospects for a solid market position and growing cash flow.

Capital expenditure

CAPEX in the Food segment amounted to R$446 million, increasing R$107 million from the same period last year, mainly due to the higher investments in projects to convert Extra Hiper stores into Assaí stores.

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Continuation of the process to capture synergies in Latin America, which includes:

●        The new Apparel concept being implemented at the Extra Hiper format. The project has already implemented 24 stores and expectation to reach 40 stores by year end;

●        Joint negotiations of equipment and services, which reached R$21.5 million at GPA by the quarter’s end;

●        Sharing of good practices in perishables and transfer of know-how to reduce shrinkage;

●        The Aliados Compre Bem project, which already has 433 partners, has a goal of reaching 500 by year-end;

●        The capture of synergies for Latin America has progressed faster than expected, goal of US$50 million already surpassed at the end of the quarter.

Strategic priorities:

1)      Focus on Food segment: continued investments in formats with the highest returns, such as Assaí and Pão de Açúcar, and intensification of store renovations; 

2)      Portfolio optimization: focus on conversions of Extra Hiper stores into Assaí stores;

3)      Continued expansion at Assaí: total of 15 conversions andother 5 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^(*): around 5.5% in the Food segment, supported by higher profitability at Assaí and Multivarejo;

3)      CAPEX: approximately R$1.2 billion;

4)      Target to raise more than US$50 million through synergies in Latin America.

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