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Edited Transcript of LAME4.SA earnings conference call or presentation 21-Feb-17 3:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Lojas Americanas SA Earnings Call

Saúde - Rio de Janeiro - RJ Feb 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Lojas Americanas SA earnings conference call or presentation Tuesday, February 21, 2017 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Murilo Correa

Lojas Americanas SA - CFO

* Editor

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Conference Call Participants

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* Joseph Giordano

JPMorgan - Analyst

* Franco Abelardo

Morgan Stanley - Analyst

* Gustavo Oliveira

UBS - Analyst

* Tobias Stingelin

Credit Suisse - Analyst

* Guilherme Assis

Brasil Plural - Analyst

* Fabio Monteiro

BTG Pactual - Analyst

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Presentation

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Operator [1]

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Good afternoon and thank you for waiting. Welcome to the Lojas Americanas Conference Call for the Earnings of the Fourth Quarter of 2016 and the Year 2016. Today we have with us, Mr. Murilo Correa, the CFO and IRO of Lojas Americanas; and Mr. Fabio Abrate, CFO and IRO of B2W Digital.

We would like to inform you that this event is being recorded and all participants are in listen-only mode during the Company's presentation. Then we will begin the Q&A session for which instructions will be given. (Operator Instructions) Supporting presentation for today's call can be seen at ri.lasa.com.br.

Before we proceed, we'd like to clarify that any potential statements made during this conference call related to Lojas Americanas' business perspectives, operating and financial goals and projections are based on the beliefs and assumptions of Company management, as well as information currently available. Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore depending on the circumstances that may or may not occur.

Investors must understand that the overall market conditions, industry conditions, and other operating factors could affect the future performance of Lojas Americanas and could lead to results that are materially different from those expressed for future consideration. The Company would like to clarify that the accounting information, which is the basis of the comments are presented according to the International Financial Reporting Standards, IFRS, and standards issued by the Brazilian Securities and Exchange Commission, CVM and in the Brazilian reais.

Now, I'll hand over to Mr. Murilo Correa, who will present the operating and financial highlights of Lojas Americanas. Mr. Correa, you may proceed.

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Murilo Correa, Lojas Americanas SA - CFO [2]

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Good afternoon, everyone. It's a pleasure to have you here during this conference call to present the results of 2016 for Lojas Americanas. In 2016, we maintained the pursuit for the balance of our trade variables such as sales and profitability. Based on the macro-economic scenario in the country, we improved our processes in order to pursue even more control of expenses and financial flow resulting in solid performance.

Throughout the year, the Company has advanced in the main operating variables, gross revenues of the parent company achieved BRL12 billion, a growth of 7.6% year-over-year. The operating cash generation (EBITDA) totaled BRL2.1 billion, a growth of 12%. In the consolidated results, we achieved gross revenues of BRL21.4 billion and a growth of 12.2% of EBITDA.

Additionally, we are still developing our logistics supply on brands or private labels, apparel and a continued evolution of products and services or the Mais AQUI promoter. We closed 2016 with a very motivated team and we're going to reach new result levels.

Now on slide two, we will present the results for 2016. In the consolidated view, we achieved a GMV, which considers sales made on the B2W Marketplace platform of BRL23.3 billion in 2016, a growth of 8.7%. In 4Q 2016, we presented a higher growth of same-store sales quarter-over-quarter. In this quarter, gross revenues as a concept of same stores was 6%, driven by the expressive growth of Red Friday, a highly promotional event that consolidated and is already part of the Company's event calendar.

In 2016, we have now created a total of [1,200] stores spread out through over 430 cities in the entire country. The investments in the year were BRL560.9 million emphasizing expansion, renovating the stores and technology.

On slide three, we're going to talk about gross margins and gross profit. In the year, consolidated gross profit was BRL5.4 billion, an evolution of 5.3% with a gross margin of 29.8% of net revenues, an increase of 1.2 percentage points. Gross profit of the parent company was BRL3.7 billion, an evolution of 10.4% with an increase of 1.3 percentage points to the gross margins, achieving 35.6% of net revenues.

The results of the year show our commitment to improve the stores' operating efficiency and the evolution of the many projects that were implemented by the Company, that are still maturing. However, we are very optimistic about the results that we've achieved so far.

Moving on to slide four, we'll talk about operating cash generation for Lojas Americanas. In 2016, consolidated EBITDA achieved BRL2.8 billion, an evolution of 12.2% with an increase of 1.5 percentage points of the EBITDA margin, which reached 15.5% of net revenues. The parent company EBITDA was BRL2.1 million, an evolution of 12% with an expansion of 1 percentage point to the EBITDA margin and reached 20.4% of net revenues.

Throughout the year, we've maintained the pursuit of the balance of our operating variables, increasing revenues and effective control of operating expenses were determining factors to grow Company's cash generation. The Company sees a nominal growth of EBITDA as the best measurement for our shareholders in terms of value generation.

Next, we will talk about the macroeconomic scenario and our achievements in 2016. In 2016, the main macroeconomic variables had results below expectations. Although there were challenges, we ended the year with 1,127 stores, according to the Company's expansion plan. And additionally, we had consolidating EBITDA growth of 12.2%, achieving 15.5% of EBITDA margin consolidated in the year.

We believe that the combination of a wide product mix, low concentration of sales in different categories offered within our stores, the expansions potential and the multiple model and supplementary model reiterates the strength of our model and the opportunities that we have to gain from new market.

On slide 6, we'll talk about the big data initiatives. Throughout the past 15 years, we have intensely invested in IT and in the capacity to store and process data in real-time. Therefore, we have built a valuable asset with the purpose of supporting our decision-making process. This data collection includes different dimensions of the business such as information about the customers and their habits, the supply chain and the operation of our stores.

In the past two years, the algorithm started to be applied in building analysis and automatic recommendations for the different areas in the company. In 2016, we highlighted five major initiatives, understanding customer behavior, mobility, Internet of Things, commercial optimization and human resource management. All of these initiatives are aiming at continuously increasing the satisfaction and purchasing experience of our customers. We are very excited with the results that are coming.

On slide seven, we'll talk about the highlights of Mais AQUI, which is responsible for selling our products, our financial products and services. In 2016, Mais AQUI responsible for managing and promoting financial products and services at Lojas Americanas presented very quick growth and significant evolution of its strategic plan. In 18 months of operation, Mais AQUI issued more than 800,000 new credit cards and registered transactions occurring in more than 1,000 Lojas Americanas stores in addition to thousands of commercial establishments around the country.

The sales made through the Lojas Americanas card increased more than 500% when compared to the previous year. The product portfolio offered has extended warranty insurance, insurance against theft, I mean, the theft of mobile devices, technical assistance to install air conditioning, prepaid credit cards, gift cards, themed gift cards, licensed prepaid cards with digital content and the credit card from Lojas Americanas. We're very happy with the growth of productivity and improvement of the indicators from Mais AQUI and we believe we're on the right path.

On slide 8, we show our private labels and the launchings for the quarter. In a strategy to expand the offer of exclusive products, we developed a diversified line of products for the brand; D'elicce, a line of panettones, cakes and chocolate gifts; and Leven, with the launching of nut mixes with different compositions that helps to triple the assortment available of the brand.

We also would like to highlight Brink+, which has been consolidated as one of the main toy brands offered at Lojas Americanas. In 2016 alone, there were about 90 new items. In the year, we kept active the restructuring of the apparel department through our Basic+ brand. We launched more than 50 collections of women's apparel, men and children ensuring weekly novelties to our customers. [Basically] private labels are developed with a high standard of quality, and aimed at meeting the needs of our customers.

On slide 9, we show the main recognition and awards for the Company for this year. In a ranking made by Reputation Pulse, Lojas Americanas was ranked as the retail company with best reputation, being the first retail in the rank and second among all Brazilian companies. For the third year in a row, Lojas Americanas ranked first among the retailers at Epoca 360 Annual magazine.

This yearbook is considered the national guide to measure all relevant dimensions for continued success of an organization. These accomplishments strengthen even more Lojas Americanas' commitment in fulfilling dreams and meeting the need of people, saving time and money and overcoming their expectation.

On slide 10, we will talk about B2W results. The year of 2016 was important for B2W in transitioning from an e-commerce operation business model to a digital platform, a combination of e-commerce, marketplace and services. Total GMV achieved BRL4.4 billion in 4Q16, growing 18.3%. In 2016, total GMV achieved BRL12.5 billion, growing 10.6%. Marketplace is still quickly developing, growing 153% in the year, achieving BRL2.2 billion of GMV and a share of 17.5% on the total GMV. These were the main comments regarding our performance in the fourth quarter and the year of 2016. Now we would like to open for Q&A to answer any question you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instruction) Joseph Giordano, JPMorgan.

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Joseph Giordano, JPMorgan - Analyst [2]

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Good afternoon. Thank you for taking my question. I have a question about the expansion plan that recreated the stores. I would like to understand what we can expect for new openings this year. I think there must be a very strong speed up and how do you see the potential for the market, if we still have room for those 2,000 brick and mortar stores? Thank you.

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Murilo Correa, Lojas Americanas SA - CFO [3]

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Good afternoon. Thank you for being part of this conference call. About the expansion plan, I just want to say that we are very optimistic. Of course, where I'm looking at (inaudible) forecast opening 800 stores as we said in 2014 by the end of the period.

It's important to say that in this year, we opened 93 new brick and mortar stores. But we're still very enthusiastic, the investment on a Traditional store is around BRL2 million to BRL2.5 million, Express BRL1 million to BRL1.5 million. And our goal for expansion is clearly seeking locations that are fundamental for the metric that we expect for our business. In 2015 and 2016 due to all the adjustments that the country is facing, it was hard for us because we have to postpone investment from some investors that are part of our expansion process. Actually, everyone knows that we don't buy the real estate, we invest in the structures of the stores. And when we invest in the structures and we look at the surrounding area, we're very strict about the surrounding. So we're very optimistic.

We are still optimistic about the future of the country. We're going into new cities. It's important to say that in 2016, we entered 36 new cities. The previous program that was from 2010 to 2013, we doubled the amount of cities that Lojas Americanas had at least one store in. So all that is part of our dream of growing. So we are going into smaller cities for the first time, cities with populations of around 25,000 inhabitants.

If we were looking at this decision a few years ago, we wouldn't go into cities with population below 100,000 inhabitants. So, of those 2,000 stores that you mentioned, we are very motivated because it will open many opportunities for us to be in more cities in Brazil. So, Brazil has about 1,500 cities. We are only in 436 cities, so less than 10% of the cities available in the country to open new stores. So this clearly gives us the motivation, an amazing motivation. And according to our calculation, we have about 2,000 stores with potential to open in the country in the format that we have today. So within the formats we have today, we have an additional potential of 2,000 stores to be opened and that makes us very tranquil to be able to meet our goals for the Mais Brasil program by 2019.

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Joseph Giordano, JPMorgan - Analyst [4]

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Thank you. This expansion, do you think it will be 100% organic or will you have any acquisitions along the way to speed up that process? Thank you.

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Murilo Correa, Lojas Americanas SA - CFO [5]

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Well, as we said a couple of times, we really like our expansion model and it's been showing us that we are on the right path in organic expansion. We had spectacular results in the stores that we've opened throughout all these years. The payback is very fast, within our studies - it's within the studies that we do every year as they go by. So for us, that is the path. In relation to any potential acquisition, sure that can happen. We always analyze everything that makes sense for our business and if a future acquisition takes place and make sense in terms of value, for instance, when we compare that to the amount that we have in our organic growth, of course, we will evaluate that and you never know.

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Operator [6]

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Franco Abelardo, Morgan Stanley.

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Franco Abelardo, Morgan Stanley - Analyst [7]

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Hello, good afternoon, everyone. My first question is about indebtedness. So Lojas Americanas' net debt increased BRL2.4 billion in the consolidated in the way you present that in the press release and BRL1.5 billion in the parent company alone. So the capital increase that was announced yesterday of approximately BRL2.5 billion will approximately only cover the cash burn that the Company had last year. So I'd like to understand the factor in it, is it capital increase to cover the cash burn initially and what have you been doing? What are the actions that are planned to try to reduce cash burn in 2017? Are there any specific initiatives such as with working capital or maybe improve your CapEx per square meter? I don't know, any type of initiative to improve the cash situation? That's my first question.

My second question is about working capital, more specifically in each suppliers account, we've seen an increase of over BRL500 million in the commercial agreement side, that pretty much dropped one-third of the total of payables accounts payables. So, I'd like to know what adjustment that is, I think that's the first time you show that. So I'd like to understand what it is? It seems like it's some type of trade budget. And I was wondering if that shouldn't be accounted as receivables because it's a negative account of liabilities, I'm trying to understand why there was an increase if suppliers haven't been fulfilling their commercial agreements, if they are seeing any difficulties in that, and what's the [alliance] and what do you expect to receive to collect that amount, BRL1.3 billion at the end of 2016? So what's the time horizon to receive cash from that commercial agreement? Thank you.

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Murilo Correa, Lojas Americanas SA - CFO [8]

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Thank you, Franco, for participating in this conference call. In relation to the public offer, it's restricted within the CVM instruction 476, it's based on that. So, we can't give you any other information, the extra in the material fact, because the funds are focused on stores, capitalization of B2W Digital and capital reinforcement. In relation to the B2W capitalization, the Company is looking for the possibility to have a capital increase with the private subscription at B2W in the amount of approximately BRL1.2 billion, and the Company is planning to invest up to that amount.

About cash, about indebtedness, the Company had throughout 2016 an EBITDA of BRL2.1 billion; in the parent company, we financial expenses that totaled BRL1.2 billion of interest rate expenses. We also had CapEx of [BRL60] billion. We also had working capital, as you mentioned, the working capital, yes, it's connected to strategic purchases with shorter deadlines and paying in advance to help our suppliers and that impacts the supplier lines. It's important to mention that the supplier lines is also influenced by our private label suppliers, they have a different dynamic in terms of payment. As we mentioned before, private label has been growing wide in our business, and we also had a higher volume of verticals. And that affected our suppliers line and the working capital that you mentioned.

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Franco Abelardo, Morgan Stanley - Analyst [9]

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For suppliers, I'm wondering specifically about the adjustment of commercial agreements. Is that the payment in advance? It doesn't seem like it, right? Because then that would be rebate or marketing agreements that used to - that wouldn't be a payment in advance, an advance payment. So in addition to that commercial agreement adjustment, there is also the advance payments but I'd like to know about specifically those agreements?

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Murilo Correa, Lojas Americanas SA - CFO [10]

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About that, the commercial agreements are agreements that are negotiated that include the Black Friday event, which takes place during the fourth quarter, and also because of the increase in the term to receive them, so you change the discount amount. So within that payment or that amount, we also include the negotiation that the company has with its suppliers. Well, I could say innovation for the first and second quarter.

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Franco Abelardo, Morgan Stanley - Analyst [11]

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Okay. I understand. So the term is shorter accounts payable, right? So the supplier account should become more normal in the second quarter?

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Murilo Correa, Lojas Americanas SA - CFO [12]

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Well, that's kind of works in cycles, here events. The next event we have Mother's Day, for instance, so it's part of the Company's cycle that's renewing itself.

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Franco Abelardo, Morgan Stanley - Analyst [13]

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Yes, but there was a 65% increase in that line. Is that specifically because of Black Friday or is that going to continue to go up at that level?

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Murilo Correa, Lojas Americanas SA - CFO [14]

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Specifically about the events that we had in the fourth quarter, yes, that does include a Black Friday.

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Operator [15]

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Gustavo Oliveira, UBS.

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Gustavo Oliveira, UBS - Analyst [16]

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I have a follow-up question about store openings. You said that in 2015 and 2016, there was some delay because of furniture companies, is that it? And what makes you think that in 2017, that will be better? There was very concentrated openings in the fourth quarter of 2016. I'd like to know how that's going to be? So my first question is about the expansion plan?

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Murilo Correa, Lojas Americanas SA - CFO [17]

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Thank you, Gustavo. Good afternoon. Well, there was some delay. You can't forget the scenario that we see here in the country, the macroeconomy of the country and the expectation. It should improve in 2017 and 2018, we believe that that will get better and as I like to say we are very strict with store returns and we hope that these partners come back.

That's what we hope for having bigger stores than we had in the past years, that's what we wish for, and when we analyze a store, we look at the rent amount, especially the rent amount, and we negotiate a lot the rent amount for the new location, which is also an important factor. Although you asked, oh, I wonder if the entrepreneurs haven't come back and it's not just one variable that influences that decision.

There are variables that you have to find the best place, the best location. When you find that, you have to negotiate the rent amount and within the scenario of an economic feasibility study, then we also study the possibility of having a partner, an entrepreneur that would invest in the store with Lojas Americanas. So what we expect is that this scenario will improve for the next year.

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Gustavo Oliveira, UBS - Analyst [18]

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Thank you. But for 2017, could we forecast a speed up in the store openings compared to 2016?

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Murilo Correa, Lojas Americanas SA - CFO [19]

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Gustavo, that's what we expect.

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Gustavo Oliveira, UBS - Analyst [20]

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Okay. What about the closing? Do you think it will happen at the same level for the past three quarters or do you think that there is a worsening in some areas in that respect?

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Murilo Correa, Lojas Americanas SA - CFO [21]

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The history show that we have been having some adjustments on those stores that don't perform according to the metrics that we defined. As you said, we have a very low closing rate and we expect to continue that rate for the next following years. We've been deemed very successful with the adjustments we've made by renegotiating rent, renovating. We've been successful and this has been giving us a relatively low closing rate compared to the number of opening, and this has been happening for the past years. And that's what we expect for the next following years.

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Gustavo Oliveira, UBS - Analyst [22]

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One last question, Murilo, please. Can you explain better this tightening of the gross margin in the quarter? I saw in the report that it's because of Red Friday or Black Friday, but these events existed in the past. So this pressure seemed harder this quarter, or maybe you were looking for better prices to be able to sell more. I would like to understand what happened in the fourth quarter, and what you think can happen from now on? Are you still going to continue putting pressure on the price or you are going to have to give up on gross margin or do the other initiatives set-off that for the next year? That's my last question. Thank you, Murilo.

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Murilo Correa, Lojas Americanas SA - CFO [23]

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Black Friday is an event that year-after-year has shown to be bigger and bigger. Obviously, it started strong online, and it has been also going strong in the brick and mortar retail. The growth of Black Friday was spectacular last quarter and it increased the share of Black Friday in the sales volume that we have in the fourth quarter compared to the same quarter the previous year. So Black Friday despite being a spectacular event, it's very promotional-driven. It has high competition for price that customers look for the best price to shop. And, therefore, same-store sales also showed the same thing. We had a robust planning to make Black Friday happen and we were able to have a much better sales growth. We went from 2.9% in the third quarter to 6% in the fourth quarter. So that's what impacted especially the margin for the fourth quarter with a drop of 1 point that you're mentioning.

With regards to the trend, we have several projects that show that the Company [is] going in the right direction for cash generation and especially the margin. So we have some projects for supply, for private label. We have been very strict with distribution of the products, big data, assortment. So for this year, that is starting 2017, apparel we have the Mais AQUI promoters, who also contribute with the sales revenue of financial products. So that all leads us to believe that the margin has a trend to growth.

In the fourth quarter, we had that problem that we already discussed and from now on, we want and work to have better results.

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Operator [24]

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Tobias Stingelin, Credit Suisse.

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Tobias Stingelin, Credit Suisse - Analyst [25]

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Murilo, just a comment on Gustavo's question about the margin, your gross margin went up last year even with the drop in the fourth quarter. So you will continue to work till it continues to grow with several initiatives, but if we have to try to understand of all these initiatives that you have going on, what percentage will it grow, we haven't even started, we are still testing, we're at the very beginning. I know that, but just to give us an idea where will we see that in sales, margin?

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Murilo Correa, Lojas Americanas SA - CFO [26]

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Tobias, as I mentioned in our expansion project, we have several new initiatives. So all that technology assortment of categories with higher margin in average, that all leads us to believe that we'll have better margins. So I think we have been working continuously. We are still at the very beginning. We still have a lot to explore especially in the pricing process and study that we have been doing with universities we have agreements with. So this all leads us to believe that we still have a lot to accomplish.

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Tobias Stingelin, Credit Suisse - Analyst [27]

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Price policy, is it aligned around the country or do you have differentiated prices in different places?

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Murilo Correa, Lojas Americanas SA - CFO [28]

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We do like to have the same price throughout the country, but that doesn't mean that we won't find different prices in different locations according to the competition that we face in those stores that have higher competition and those with lower competition, especially those cities, in which not only price but the number of installments is higher. Not necessarily prices are the same in the entire country.

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Operator [29]

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Guilherme Assis, Brasil Plural.

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Guilherme Assis, Brasil Plural - Analyst [30]

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I'd like to go back to the part of our growth and based on what I understood from the press release, you already contracted 80 stores, you've already opened five since the beginning of the year. So there are five contracts or so, are those of the projects that were postponed and I'd like to understand if we do the math about the five-year plan, you opened a little less than 200 stores in the first couple of years, so now you will have to speed up to 220 stores as from 2017. The 80 seem like they are still very different from that number. So this was already talked about, but it seems to me like the Company has lately been looking for alternatives. And even with the new offer and the confirmation in participating in the BR Distribuidora bid and others that were suspended and [they are now] confirmed by the Company as an eventual M&A.

What I'd like to understand that that offer, your interest in BR Distribuidora, if that's not related to the difficulty in being able to deliver on the store opening plan, how do you see that? Does it make sense, I mean it was asked before already, the percentage worth of M&A and probability of M&A, it seems to me like that's growing. So I'd like to know what type of asset would be interesting for you? We know that there is BR Distribuidora that was declared, your interest in that was declared. But what other kinds of assets do you think would make sense in terms of a potential M&A for the Company?

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Murilo Correa, Lojas Americanas SA - CFO [31]

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Thank you for attending the conference call. Good afternoon. In relation to the public offer, it was already mentioned in the material fact for the store expansion for B2W Digital and capital reinforcement. About the 80 contracted stores, that part of our process should speed up store openings throughout the next year. Yes, we know that we are far from the 800 stores, but we do want to achieve that target at the end of 2019. So we can make that happen based on everything that we have available to be able to carry out the store expansion.

About the five stores that opened, yes, correct, the five stores, I can guarantee they are in the process of entrepreneurs giving up in relation to the expansion process. About M&A, it's very clear that within the acquisitions that we have in the past years, back in 2007 or in Blockbuster, almost 130 stores, and let's say we had some good overlapping in terms of what we expected. So the assets, the points of sale, it was an important decision on what we were expecting for that acquisition. So in acquisitions, we study many different possibilities, in the valuation that we carry out of the acquisition. And what we answered on the other question, can it happen, yes it can, provided it's aligned with everything that we expect in terms of return for our shareholders.

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Guilherme Assis, Brasil Plural - Analyst [32]

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Murilo, can I probe that a little more? You mentioned resources, and what you mentioned in the material fact and there you can see, that was talking about store expansion. So can we interpret that as organic or inorganic expansion or what can we say that is mainly organic expansion? Since I feel that it's still on - you are focusing on organic expansion, can we say that?

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Murilo Correa, Lojas Americanas SA - CFO [33]

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For organic expansion, we're always looking at the opportunities that we're talking about, opportunities that have to fit in within the concept of value that we consider expansion.

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Guilherme Assis, Brasil Plural - Analyst [34]

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Another question if you allow me. In relation to B2W capitalization, you said that it's still under evaluation, and we saw in the B2W call that it was deleveraged and that the Company is [preparing] for the fourth quarter and then third, and now it's deleveraged. So we're talking about BRL1.2 billion, last year it was BRL800 million. But with respect to generate cash for B2W, still seeing more in the future than in the short-term even though there is a seasonal deleverage.

Now with regard to [Sempre Mais], it then leads to proceeds, it says it's something there for you, whether it's still under evaluation. So when we know if there is going to be a capitalization. And my question is, will it make sense to put more money now into B2W? That's my question.

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Murilo Correa, Lojas Americanas SA - CFO [35]

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Guilherme, B2W carries out the analysis as we disclosed in the material fact. The company B2W is analyzing the capital increase in an amount approximately BRL1.2 billion, that's preliminary [for you].

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Guilherme Assis, Brasil Plural - Analyst [36]

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Do you have any idea when we will know when it would be or how much it will impact?

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Murilo Correa, Lojas Americanas SA - CFO [37]

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No, I don't have [a date].

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Operator [38]

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Fabio Monteiro, BTG Pactual.

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Fabio Monteiro, BTG Pactual - Analyst [39]

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I'd like to explore the part of financial products and services is almost 800,000 cards. So I would like to hear what you think is the potential in considering the EBITDA in the medium-term, and what types of products you will add in addition to the ones that you've already negotiated? And even if there is an expectation of issuing cards this year, if it's going to be similar to last year? Thank you.

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Murilo Correa, Lojas Americanas SA - CFO [40]

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Good afternoon, Fabio. Thank you for participating. The number is of Mais AQUI, which is the card promoter, so there's no credit risk. [Simple intent], as said during my speech, we're very optimistic about the promoter, we've already launched many products. But we still will launch many more. Let's say, we still have the beginning of personal launch and that could definitely bring profitability to the business.

In relation to forecasting the size, it could be large, that even when we look at other retailers and compare to Lojas Americanas, you can see that, that business in Lojas Americanas pretty much doesn't exist, even though the numbers seem large, the revenue that it brings in is still small, very small and speeding up the return on margins so to speak that it could bring is [fixed] in the next year.

So we are very optimistic in terms of the new cards. It does include speeding up in 2016. And that's exactly what we expect. We have several plans for Mais AQUI for 2017 in terms of speeding up the offering of the products at the stores, creating a platform that enables the customer to have more options, to choose the best option for them. When they are getting one of the financial products, the prepaid cards has had incredible results and looking at all that together, we expect a lot from Mais AQUI.

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Fabio Monteiro, BTG Pactual - Analyst [41]

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Okay. One last question, we already discussed the organic expansion of the stores, but more specifically, I just thought you would be able to tell me how many stores you did not open in 2016 because of either the difficulty in approving the store or because of the partners that invest with you don't have as much appetite or some other factor. I would like to understand the one that you did not open, do you have a figure or an idea how many stores you tried to open but didn't?

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Murilo Correa, Lojas Americanas SA - CFO [42]

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Well, you mentioned several factors there that did contribute for not having opened several stores. CDI is also a component. So when it does improve, it becomes less difficult to open a store within the financial evaluation of the store. Of course, we also have [Empresas Mais], so what if the scenario in the Brazil improves, I think it will be better for all of us as well. About the estimate of the number of stores that we did not open, I'd say around 80 to 100 stores.

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Operator [43]

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We now would like to close our Q&A session. I would like to pass the floor to Mr. Murilo Currea for his closing comments. Mr. Murilo?

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Murilo Correa, Lojas Americanas SA - CFO [44]

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Thank you for participating in our conference call for the results for 2016. Take a look at our great offers at Lojas Americanas and B2W Digital website. Go there, because everyone else does. Our IR team is open to clarify any other questions through the e-mail, investidores@lasa.com.br. Thank you and good afternoon.

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Operator [45]

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This conference call is now closed. Thank you for participating and have a great afternoon.

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Editor, [46]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.