Magazine Luiza : 2Q19 Earnings Release

August 12, 2019

Magazine Luiza S.A. (B3: MGLU3)

2nd Quarter 2019 Earnings Release (IFRS equivalent)

2Q19 HIGHLIGHTS

Marketplace grew 289%, reaching 24% of total e-commerce

E-commerce grew 56%, reaching R$2.4 billion and 41% of total sales

Physical store sales grew 9%

Total sales rose 24%, reaching R$5.7 billion

Pro Forma EBITDA of R$304 million, 7.2% margin

Pro Forma Net profit reached R$108 million, 2.6% margin

Net cash position of R$0.8 billion in Jun/19

• Consistent market share gains. In 2Q19, total sales (physical stores, traditional e-commerce (1P) and marketplace (3P)) increased 24.4% to R$5.7 billion, reflecting growth of 56.2% in e-commerce (on top of 66.1% growth in 2Q18) and 8.7% in physical stores (same store sales growth of 0.3% on top of 27.1% growth in 2Q18). It is worth highlighting the performance of the 102 new stores that generated sales above our expectations, expanding total physical store sales growth by 8.4 p.p.. By contrast, in the first 6 months of the year, the market for furniture and electronics grew only 3.1%, according to IBGE.
• Accelerated growth in e-commerce. E-commerce sales grew 56.2% in 2Q19, reaching 41.5% of total sales, compared to market growth of 10.8% (E-bit). In traditional e-commerce (1P), sales grew 30.9%, and the marketplace contributed with additional sales of R$582.8 million (reaching 24% of total e-commerce). Among other things, Magalu's market share gains were driven by the app performance with 12 million MAU (including Magalu Superapp, Netshoes, Zattini and Época Cosméticos), increase in the sellers base and marketplace assortment, the maturation of multichannel projects, faster delivery and the maintenance of our RA1000 ranking.
• Evolution of gross profit, investments in level of service and new customer acquisition. In 2Q19, pro-formagross profit increased 11.9% to R$1.2 billion. Pro-formagross margin decreased 80 bps to 29.2% reflecting the significant increase in traditional e-commerce(1P) and the end of "Lei do Bem", partially offset by accelerated marketplace growth and commercial strategy. Pro-formaoperating expenses pro-formawere stable in 2Q19 at 22.0% of net revenues including additional investment in the level of service and the acquisition of new customers.
• Significant Luizacred growth. Luizacred´s total revenue grew 51.4% in 2Q19, the largest growth in the last 5 years. The Luiza Card base increased 24.2% YoY reaching 4.6 million cards. In the same period, Luiza Card revenue grew 32.7% to R$6.3 billion. The total portfolio grew an impressive 44.1% in 2Q19 reaching R$9.5 billion. Considering the accounting practices established by the Brazilian Central Bank, so excluding the effects of IFRS 9, Luizacred's net income was R$35.0 million in 2Q19 (ROE of 16.2%).
• EBITDA and net income. In 2Q19, Pro-forma EBITDA reached R$304.0 million (7.2% margin). High sales growth and the positive contribution of e-commerce were responsible for the EBITDA result. In line with the strategic phase of focus on the customer, additional investments in service levels and new customer acquisition influenced the EBITDA. Due to these factors, and the impact of IFRS9 on Luizacred, the Company posted R$108.5 million of Pro-forma net income. Under the accounting practices established by the Brazilian Central Bank, Magalu´s Pro-forma net income would have been R$130.0 million in 2Q19.
• Strong cash flow generation and ROIC. Cash flow from operations adjusted by receivables, reached R$0.7 billion in LTM, due to improved results and disciplined working capital management. Once again, the Company presented high growth with high ROIC and strong cash generation. In 2Q19, ROIC reached 17% and 23% LTM.
• Net cash position and capital structure. In the last 12 months, adjusted net cash went from R$1.3 billion in Jun/18 to R$0.8 billion in Jun/19. This variation is entirely related to the Netshoes acquisition concluded in Jun/19. As of this date the Company reached a total cash position of R$2.0 billion, with cash and securities of R$1.1 billion and credit card receivables of R$0.9 billion.

MGLU3: R$ 36.42 per share	Conference call: August 13, 2019 (Tuesday)	Investor Relations: Tel. [phone]
Total Shares: 1,524,731,712	10:00AM in US Time (EST): [phone]	www.magazineluiza.com.br/ri
Market Cap: R$ 55.5 billion	11:00AM in Brazil Time: [phone]	[e-mail]

Magalu

2Q19 Earnings Release

	R$ million (except when otherwise indicated)			2Q19			1Q18			% Chg			1H19		1H18			% Chg
	Total Sales¹ (including marketplace)	5,747.0	4,618.8	24.4%	11,465.0		9,084.9		26.2%
	Gross Revenue	5,196.2	4,487.3	15.8%	10,509.4		8,853.6	18.7%
	Net Revenue	4,308.1	3,696.2	16.6%	8,637.1		7,309.4	18.2%
	Gross Income	1,092.2	1,108.0	-1.4%	2,303.7		2,151.4	7.1%
	Gross Margin	0.3	30.0%		-460 bps	26.7%	29.4%			-270 bps
	EBITDA	379.9	312.4	21.6%	775.3	612.9	26.5%
	EBITDA Margin	8.8%	8.5%		30 bps	9.0%	8.4%			60 bps
	Net Income	386.6	140.7	174.7%	518.7	288.2	80.0%
	Net Margin	9.0%	3.8%		520 bps	6.0%	3.9%			210 bps
	Gross Revenue Pro-Forma	5,117.6	4,487.3	14.0%	10,430.9		8,853.6	17.8%
	Net Revenue Pro-Forma	4,248.6	3,696.2	14.9%	8,577.6		7,309.4	17.3%
	Gross Income Pro-Forma	1,239.6	1,108.0	11.9%	2,451.06		2,151.4	13.9%
	Gross Margin - Pro-Forma	29.2%	30.0%		-80 bps	28.6%	29.4%			-80 bps
	EBITDA Pro-Forma	304.0	315.2	-3.6%	628.7	616.7	1.9%
	EBITDA Margin Pro-Forma	7.2%	8.5%		-130 bps	7.3%	8.4%			-110 bps
			-	-	-				-
	Net Income Pro-Forma	108.5	142.6	-23.9%	251.2	290.7	-13.6%
	Net Margin Pro-Forma	2.6%	3.9%		-130 bps	2.9%	4.0%			-110 bps
	Same Physical Store Sales Growth	0.3%	27.1%	-	4.1%	21.4%	-
	Total Physical Store Sales Growth	8.7%	34.1%	-	12.2%	27.7%	-
	E-commerce Sales Growth (1P) ²	30.9%	54.8%	-	32.1%	54.2%	-
	Total E-commerce Sales Growth ²	56.2%	66.1%	-	53.1%	65.4%	-
	E-commerce Share in Total Sale	41.5%	33.0%		8.4 pp	41.4%	34.2%			7.3 pp
	Number of Stores - End of Period	987	885		102 stores	986	885			101 stores
	Sales Area - End of Period (M2)	585,341	538,753	8.5%	584,572		538,753	8.5%

1. Total Sales includes sales from physical stores, traditional e-commerce (1P) and marketplace (3P).
2. E-commerceSales include Netshoes sales as of june 14 (acquisition).

2

Magalu

2Q19 Earnings Release

IFRS 16 AND NON RECURRING EVENTS

IFRS 16 introduced a single model for the accounting of leases in the balance sheet of lessees. As a result, the Company, as lessee, recognized as assets the right to use underlying assets and their corresponding lease liabilities.

In 2Q19, the Company was successful in lawsuits regarding the unconstitutionality of the inclusion of ICMS in the PIS / Cofins tax basis.

Additionally, on June 14, Magalu concluded the acquisition of Netshoes, starting to consolidate its results as of that date.

For ease of comparability with 2Q18, 2Q19 results are also being presented in a Pro Forma view, without the effects of IFRS 16, tax credits, the acquisition of Netshoes, and other non-recurring provisions and expenses.

	INCOME STATEMENT (R$ million)														2Q19
			2Q19			V.A.		IFRS 16			Non-recurring
	PRO FORMA CONCILITAION										Pro Forma			V.A.
	Gross Revenue		5,196.2			120.6%	-	78.5		5,117.6		120.5%
	Taxes and Deductions		(888.1)			-20.6%	-	(19.1)		(869.0)		-20.5%
	Net Revenue		4,308.1			100.0%	-	59.5		4,248.6		100.0%
	Total Costs		(3,215.9)			-74.6%	-	(206.9)		(3,009.0)		-70.8%
	Gross Income		1,092.2			25.4%	-	(147.4)		1,239.6		29.2%
	Selling Expenses		(726.2)			-16.9%	60.8	(18.2)		(768.7)		-18.1%
	General and Administrative Expenses		(154.8)			-3.6%	19.7	(10.5)		(164.1)		-3.9%
	Provisions for Loan Losses		(13.2)			-0.3%	-	(0.1)		(13.1)		-0.3%
	Other Operating Revenues, Net		184.4			4.3%	-	171.7			12.7		0.3%
	Equity in Subsidiaries		(2.5)			-0.1%	-	-		(2.5)		-0.1%
	Total Operating Expenses		(712.3)			-16.5%	80.5	142.9			(935.7)		-22.0%
	EBITDA
		379.9			8.8%	80.5	(4.6)		304.0		7.2%
	Depreciation and Amortization		(96.8)			-2.2%	(54.2)	(3.4)		(39.3)		-0.9%
	EBIT
		283.1			6.6%	26.3	(7.9)		264.7		6.2%
	Financial Results		256.0			5.9%	(46.4)	398.2			(95.9)		-2.3%
	Operating Income		539.1			12.5%	(20.1)	390.3			168.9		4.0%
	Income Tax and Social Contribution		(152.4)			-3.5%	6.8	(98.9)		(60.4)		-1.4%
	Net Income		386.6			9.0%	(13.2)	291.4			108.5		2.6%

3

Magalu

2Q19 Earnings Release

Adjustments - Non - Recurring Events

	Adjustments		Consolidated
	Increased Inventory Provision	(172.0)
	Tax Credits	571.1
	Tax Provisions	(246.0)
	Tax Expenses	(86.9)
	Acquisition Expenses / Non recurring	(66.5)
	Other Results /Netshoes	(4.3)

EBITDA Adjustments

Depreciation/ Netshoes

Update - Tax Credits PIS/Cofins - Tax Credits Acquisition Expenses / Non recurring Other Results/ Netshoes

(4.6)

(3.4)

-

459.9

(19.3)

(39.7)

(2.7)

	Financial Result Adjustments			398.2
	Income Tax and Social Contribution	(98.9)
	Net Income Adjustments			291.4

4

Magalu

2Q19 Earnings Release

MESSAGE FROM THE EXECUTIVE DIRECTORS

During the second quarter, we continued our efforts to achieve our growth strategy.

These efforts manifested themselves in our principal initiatives-expanding the marketplace platform; adding new categories; developing a superapp and accelerating delivery to the customer-bringing us closer to attaining our ultimate objective: the digitalization of Brazilian retail.

Our active customer base reached 22.3 million people, a growth of 53%, with 128% in e-commerce, including unique customers from Netshoes, and 19% in physical stores. We reached 12 million monthly active users on the Magalu Superapp and the apps of Netshoes, Zattini and Época Cosméticos.

Marketplace growth was one of the top highlights of the quarter, growing 289% and reaching R$583 million in sales during the quarter. The marketplace grew to 24% of total e-commerce sales, up from 18% during the first quarter of the year. We added an average of one thousand sellers per month and we ended the quarter with more than 8 thousand sellers on the platform and an assortment of 7.5 million items. During the period, around 45% of our e-commerce customers purchased an item from the marketplace. Overall e-commerce sales grew 56%, reaching 41% of total sales.

The meaningful growth in our base of sellers, assortment and marketplace sales strengthen our effort to develop and scale Magalu as a Service (MaaS).

Around 60% of our sellers use Magalu Entregas and, Malha Luiza already offers services such as collection and delivery of products to the end customer for more than 135 sellers, in our cross-docking program.

Expansion into new categories is another essential part of our exponential growth strategy. The acquisition of Netshoes, concluded in the middle of June, cemented Magalu's position as the leading company in the e-commerce of high-growth categories such as clothing, shoes and sporting goods in Brazil.

With Netshoes, we grew the assortment of products on our platform, both from our own inventory (more than 250,000 additional items) and via the marketplace (more than 1,000 sellers on the Netshoes platform). Today, the customer can find thousands of products offered by Netshoes and Zattini on Magalu's Superapp.

Aside from this, the acquisition of Netshoes strengthens our active customer base and amplifies our relevance among younger customers who already purchase non-durable goods through the Internet.

We are a multichannel platform - with totally integrated physical stores and e-commerce. Adding Netshoes to this model should provide customers with a unique purchasing experience, with all of the benefits that a multichannel operation can offer, on top of efficiency gains.

The physical stores also demonstrated excellent performance and market share gains. Sales grew 9% during the quarter, even with a tough comparison basis that included sales related to the World Cup last year. Independent of this effect, same store sales would have been up approximately 10% during the period.

To accelerate sales in the telephony category, we launched a campaign, "Smartphonize Brazil", incentivizing customers to trade-in their old cell phones for a discount on the purchase of a new device.

Overall, our sales grew 24% during the second quarter, on top of a growth of 43% during the same period last year.

Luizacred also demonstrated meaningful growth: total revenues grew more than 50% during the second quarter, the highest rate of growth in the last five years.

5