3Q13 Earnings Release

São Paulo, Brazil, October 16, 2013 -  GPA [BM&FBOVESPA: PCAR4 (PN); NYSE: CBD] and Via Varejo [BM&FBOVESPA: VVAR3] announce their results for the third quarter of 2013 (3Q13). The results are presented in the segments as follows: GPA Food, formed by supermarkets (Pão de Açúcar, Extra Supermercado and PA Delivery), hypermarkets (Extra Hiper), neighborhood stores (Minimercado Extra), cash-and-carry stores (Assaí), GPA Malls & Properties, gas stations and drugstores; and GPA Consolidated, formed by GPA Food and Viavarejo (Casas Bahia and Pontofrio bricks and mortar stores) and Nova Pontocom's e-commerce operations (e-commerce operations of Pontofrio.com.br, Extra.com.br, Casasbahia.com.br, Barateiro.com, PartiuViagens.com.br, and Atacado Pontofrio). Further information on the results of the subsidiary Via Varejo S.A. can be found in its respective earnings release disclosed on this date.

GPA Food

Sales Performance

Consolidated gross revenue was R$15.720 billion, up 15.0%, driven by the opening of 132 stores in the last 12 months, 20 of them in the last quarter, as well as by the 10.8% growth in same-store sales, as detailed below:

üFood Category: growth of 7.9%, driven mainly by perishables: meat, fruits, legumes and vegetables. This growth, which surpassed the IPCA inflation index in 200 basis points, represents an upturn on the 1^st half of the year. 

üNon-food: growth of 13.1%, driven by sales of technology products: cell phones, tablets and TV sets, with growth across all formats operated by the Group. Specialty stores (Pontofrio and Casas Bahia) and e-commerce accelerated the pace of sales in comparison with previous periods, while Hypermarkets continued to register the sales recovery in this category.

In the last 9 months, gross sales increased 12.0% compared to the same period last year, to R$45.624 billion. Growth in the same-store basis was 8.3%.

GPA Food Highlights

Gross revenue reached R$8.448 billion, up 12.9%, driven by the performance of the Assaí banner, which continued to post double-digit growth (37.4%). On a same-store basis, growth was 7.1%. A total of 15 stores were delivered in the period, of which 12 Minimercado, two Assaí and one Pão de Açúcar.

Assaí’s focus in the 2^nd half of the year has been on expanding in states where it is already present. Over the last nine months, a total of eight stores were opened, five of them in new states, whose sales exceeded our expectations. At least five stores should be delivered by the year-end.

The Company has been investing in price competitiveness to increase store traffic and gain market share in the retail segment. The strategy should last through the coming periods. The non-food category in the Hypermarket format continued the sales recovery trend, driven by the successful marketing campaigns in the electronics category.

Viavarejo Highlights

Gross revenue totaled R$7.272 billion, increasing by 17.6% over 3Q12. Sales growth accelerated during one more quarter across all businesses: brick-and-mortar stores and e-commerce, with a gain in market share during the period. Five new stores were opened. Same-store sales growth reached 15.4%. Additionally, 31 new stores were opened in the last 12 months.

Brick and mortar stores posted same-store sales growth of 10.8%, driven mainly by technology products, especially cell phones, tablets and TV sets.

Nova Pontocom posted gross revenue growth of 43.9%, mainly due to higher customer traffic, better conversion rate and Father's Day strong sales, celebrated in August. The results of Nova Pontocom in 3T13 were close to the break-even point and the investments in price competitiveness were sustained by the savings generated in process review and expenses reductions.

Operating Performance

(1)     As of 4Q12, the result 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 of 1Q13, the depreciation recognized as cost of goods sold, essentially consisting of the depreciation of distribution centers, began to be specified in the calculation of EBITDA.

(3)     As of 2Q13, the Company adjusted EBITDA by excluding the Other Operating Revenue (Expenses).

The Company’s gross margin increased 10 basis points, due to the increased margin at Viavarejo, which was practically offset by investments in price competitiveness in food retail and the opening of Assaí stores.

Selling, general and administrative expenses increased at a slower pace than revenue growth, mainly due to the simplification of processes at GPA Food and synergy gains at Viavarejo. The ratio of selling, general and administrative expenses to net revenue decreased from 19.8% in 3Q12 to 19.2% in 3Q13.

EBITDA totaled R$1.036 billion, up 30.4% over the same period last year. EBITDA margin was 7.4%, expanding by 90 basis points over 3Q12.

In 9M13, EBITDA stood at R$2.507 billion, with margin of 6.1%. Note that in 2Q13 the Company recorded other operating income and expenses of R$350 million, as mentioned in the Earnings Release. Adjusted EBITDA, excluding other operating income and expenses, came to R$2.882 billion, with margin of 7.1%.  

Food Retail (Extra and Pão de Açúcar)

Gross margin decreased 110 basis points, backed by a similar decrease in selling, general and administrative expenses as a percentage of net revenue, from 20.3% in 3Q12 to 19.2% in 3Q13, a result of discipline in expenses control. These expenses increased at a slower pace than net revenue growth in the quarter, at 3.5% and 7.9%, respectively.

The Management reaffirms the strategy of simplifying processes and increasing operational efficiency, adopted since the beginning of the year, which have been reverted to investments in price competitiveness to increase store traffic and market share. This strategy should continue through the coming periods.

EBITDA amounted to R$494 million, for margin of 8.0%,  up 20 basis points year over year.

In 9M13, EBITDA reached R$1.179 billion, with margin of 6.5%. Adjusted EBITDA, excluding other operating income and expenses, came to R$1.481 billion, with margin of 8.2%, up 20 basis points year over 9M12.. 

GPA Malls added 18,500 square meters of gross leasable area (GLA) in 3T13, from the extension of existing spaces or creation of new commercial centers. Among the projects delivered in the period, highlight to the new 4,900 square meters of GLA from the 1^st phase of the Company’s second neighborhood mall, reinforcing its unique positioning in this segment. Over the past nine months, a total of 32,600 square meters of GLA have been delivered. The Company expects to add at least 35,000 square meters of GLA in 2013.

Self-service Wholesale (Assaí)

Gross revenue increased 37.4% in the quarter, to R$1.738 billion. In the same-store basis, Assaí continued to register double-digit growth. EBITDA grew 23.3%, with EBITDA margin of 3.3% This EBITDA margin reflects the decline in gross margin and increased operating expenses, due to the opening of new stores in the period as well as pre-operating expenses of units that will be opened next quarter.

During the first half of the year, the Company focused its store openings in new states, which resulted in a natural compression of margins in the initial months of operation of the recently opened stores in such locations.

In the second half, the focus has been on expansion in states where the Company already operates, which requires fewer investments in margin and lower level of expenses in these units. Two stores were opened in 3Q13 and another five should be delivered at least, by the year-end.

In 9M13, EBITDA reached R$137 million, increasing 12.3%, with EBITDA margin of 3.2%.  

Electronics and Home Appliances

(Viavarejo brick-and-mortar stores and Nova Pontocom)

The Company registered accelerated growth during yet another quarter, which was the result of the sharp growth registered by Casas Bahia, Pontofrio and e-commerce stores and signalization of  market share gains in the period.

EBITDA margin increased 180 basis points, due to the increase in gross margin, in turn driven by the regionalization of product deliveries by suppliers at the Distribution Centers (DC), optimization of the furniture assembling team, partial outsourcing of the fleet and improvement of processes at the DCs, coupled with an improved sales mix and higher penetration of service sales. Gross margin increased despite the higher share of sales by Nova Pontocom, whose gross margin is lower than that of brick-and-mortar stores.

As reported in the 3Q12 earnings release, revenues of R$26 million were booked in the operating expenses, relating to the reimbursement of legal expenses to related parties. For better comparison, the following changes on operating expenses will do not consider this effect.

There was an improve of 40 basis points in the operating expenses as a percentage of net revenue in 3Q13 (21.3%) compared to 3Q12 (21.7%), positively influenced by the outsourcing of contracts and administrative expenses optimization and reduced IT expenses.

In 9M13, EBITDA totaled R$1.191 billion, with margin of 6.5%. Adjusted EBITDA, excluding operating income and expenses, totaled R$1.264 billion, with margin of 6.9%, an increase of 190 basis points over 9M12.  

Indebtedness

Net debt, including Viavarejo’s payment book operation, totaled R$4.687 billion at the end of September. Approximately 70% of loans, financing and debentures mature in over 12 months. The Company continues to reduce its gross debt.

The net debt/EBITDA ratio stood at 1.22x on September 30, 2013 compared to 1.46x on September 30, 2013. At the end of September, the Company had cash reserves close to R$4.8 billion. For further information, refer to the Cash Flow section.

Financial Result

The ratio of net financial result to net revenue was stable in relation to the previous quarter (2.2%), despite the increase in the Selic base interest rate between the periods.

The net financial result was basically composed of the following items:

§  Charges on net debt of R$60 million, down 4.7%, mainly due to the cash flow at Viavarejo;

§  Cost of sale of receivables of payment book of R$68 million, practically stable in relation to 3Q12, with the average sales term remaining unchanged;

§  Cost of sale of receivables of cards of R$157 million, up 50.5% over 3Q12. This increase is mainly due to the larger amount of receivables sold, aligned with the revenue growth, added to the basic interest rate increase (measured by the average overnight rate – CDI), which grew approximately 25% between 3Q12 and 3Q13.

Total discount of receivables (cards and payment books) increased 14.5%, from R$7.6 billion in 3Q12 to R$8.7 billion in 3Q13, in line with revenue growth and basic interest rate increase, as mentioned above.

Net Income

Net income was R$357 million in 3Q13, 74.5% higher than in the same period last year, with net margin of 2.5%. Both businesses posted an increase in net income this quarter, 29.0% growth in GPA Food and 165.9% growth in Viavarejo.

In 9M13, adjusted net income increased 86.2% to R$978 million. The increase is due to sales growth, store openings at GPA Food and improved profitability at Viavarejo. 

Simplified Cash Flow

Cash balance at the end of 3Q13 was R$4.780 billion. The decrease of R$771 million reflects the payment of loans, debentures and dividends. As mentioned in previous periods, the Company did not need to refinance its existing debt or contract new debt.

Capex

Consolidated investments totaled R$446 million in 3Q13, up 10.1% over 3Q12, mainly due to the opening of new stores and land acquisition, which received 37.9% of the investments made in the period. Compared to the same period in 2012, the amount was 32.8% higher. As explained in the previous sections, 20 new stores were opened in 3Q13: 12 Minimercado Extra, three Ponto Frio, two Assaí, two Casas Bahia and one Pão de Açúcar. As a result, a total of 20,000 square meters of sales area were added to GPA Consolidated in the period. In the last 9 months, sales area expanded by 2.8%.

Investments in GPA Food totaled R$328 million in 3Q13, up 3.9% over 3Q12. Of the total capex, 47.3% went towards opening new stores and acquiring land, reflecting the Company’s strategy of spurring organic growth for this operation.

The Company reaffirms its commitment to the area expansion guidance of over 6% for GPA Food and from 2% to 3% for Viavarejo for 2013, which does not include the Settlement (Termo de Compromisso de Desempenho - TCD) with Brazil’s antitrust agency CADE (Conselho Administrativo de Defesa Econômica) of selling 74 stores.

For 2013, the Company plans to invest up to R$2 billion, as approved at General Shareholders Meeting.

Dividends

In a meeting held on October 16, 2013, the Board of Directors approved the distribution of interim dividends based on the net income recorded in the balance sheet of September 30, 2013, amounting to R$33.2 million, equivalent to R$0.13 per preferred share and R$0.118182 per common share. Shareholders of record at the close of October 25, 2013 were entitled to the dividends. As of October 28, 2013, shares will be traded ex-dividends. Dividends will be paid on November 7, 2013.

Subsequent Events

Approval from CADE for the swap of shareholding interest between Casino Guichard-Perrachon and Península Participações S.A.

On September 6, the Company disclosed the letter received from Casino Guichard-Perrachon (“Casino Group”) and Mr. Abilio dos Santos Diniz (“Group AD”) informing of the execution of a Private Instrument of Transaction and Waiver of Rights, by which the parties agreed to transact all and any dispute, claim or litigation related to their company in Brazil, particularly as the shareholders of Wilkes Participações S.A. (“Wilkes”) and CBD.

Among other matters, the agreement established the swap of 19,375,000 preferred shares issued by CBD and held by the Casino Group in consideration for 19,375,000 common shares issued by Wilkes and held by the Group AD. For further information, see the Material Fact notice disclosed on September 6, 2013.

On October 2, Brazil's antitrust agency CADE approved the transfer of 11,229,075 shares without restriction.

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 (brick-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 excluded from the calculation of EBITDA.

Adjusted EBITDA: Profitability measure calculated by EBITDA excluding Other Operating Income 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 the comparability and analysis of results.

Adjusted net income: Profitability measure calculated as net income excluding Other Operating Income and Expenses, discounting the effects of Income and Social Contribution Taxes. 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 the comparability and analysis of results.