Vulcabras Azaleia : Earnings Release 3Q17

‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌‌

Jundiai, November 14 - 2017 - Vulcabras Azaleia S.A. (BM&F BOVESPA: VULC3) announces today the results for the third quarter of 2017 (3Q17). The Company's financial and operational information is presented based on consolidated numbers and in millions of reais, prepared in accordance with international financial reporting standards (IFRS). The data contained in this report refer to the performance in the third quarter of 2017, compared to the third quarter of 2016, unless specified otherwise.

HIGHLIGHTS

R$ Million	3Q17	3Q16	Var. % 3Q17 / 3Q16	9M17	9M16	Var. % 9M17 / 9M16
Net revenue	343.9	308.3	11.5%	948.4	827.1	14.7%
Gross income	135.7	111.9	21.3%	362.6	280.7	29.2%
Gross margin %	39.5%	36.3%	3.2 p.p.	38.2%	33.9%	4.3 p.p.
Net income	65.9	19.8	232.8%	143.5	22.1	549.3%
Net margin %	19.2%	6.4%	12.7 p.p.	15.1%	2.7%	12.5 p.p.
EBITDA	84.0	56.1	49.9%	226.1	130.2	73.7%
EBITDA Margin %	24.4%	18.2%	6.2 p.p.	23.8%	15.7%	8.1 p.p.

VULC3 Quote (09/29/2017):

R$ 9.04 per share

Number of shares:

Pre-Offer: 185,230,346

Pro forma Post offer: 245,756,346

Market value:

Pre-Offer: R$ 1.67 billion

Conference call:

11/16/2017 at 10:00 (GMT)

Phone - Brazil:

[phone]

[phone]

Phone - other countries:

USA

[phone]

[phone]

UK

[phone]

+0808-234-8680

Contact:

Edivaldo Rogério de Brito Investor Relations Officer Telephone:

(11) 4532-1005

e-mail:

[e-mail] http://vulcabrasazaleiari.com.br/

• Sales (Net Revenue): In 3Q17, sales totaled R$ 343.9 million, an increase of 11.5% compared to the same period of the previous year.
• Gross income: R$ 135.7 million in 3Q17, increase of 21.3% against 3Q16.
• Gross margin: 39.5% in 3Q17, increase of 3.2 percentage points
• Net income: R$ 65.9 million in 3Q17 compared to an income of R$ 19.8 million in 3Q16.
• EBITDA: R$ 84.0 million in 3Q17, 49.9% increase against 3Q16.

Message From the Chief Executive Officer

Vulcabras Azaleia is in a new period. The company has just migrated to Novo Mercado, a segment which brings together companies with the highest standards of corporate governance.

We worked hard over the last few years to reach this. We went through a restructuring, from 2012 to 2015, which paved the way for us to, after that, develop a modern, agile and lean management.

The data for the third quarter of 2017 confirm this improvement, with growth in revenue, profit, EBITDA and margins, cost control and reduction of finance costs.

Gross margin reached 39.5% in 3Q17, thus returning to more satisfactory and consistent levels with those presented by other players in our segment. We have improved the margins in a still challenging economic environment due to an improvement in the competitive environment and a great efficiency and occupancy of the factories.

Income for the period showed a significant expansion, 232.8% higher than the 2016 results. The result was driven by the improvement of operating conditions and reduction of finance costs and foreign exchange expenses caused by reduction of net debt.

3Q17 EBITDA margin was 24.4%, reflecting the strength of our operation and putting us among the most significant Ebitda rates of the industry.

Net debt was reduced by R$191.4 million in the current year due to operating cash generation, even after an increase in PP&E investments.

This quarter we continue advancing the industrial modernization project. Capex investments reached R$46.5 million this year, 40.5% higher than the investments made in the same period last year.

As a subsequent event, we inform that with the net proceeds from the public offering in the amount of R$

550.8 million, the Company settled on October 31, 2017 the following obligations: all loans with the shareholders of the Control group in the amount of R$ 250.1 million and bank debts in the amount of R$

197.4 million, in a total amount of R$ 447.5 million.

In this new scenario that we conquered, we remain convinced that we are treading the right path for the growth of our business with profitability and solidity.

Pedro Bartelle

Institutional

With 65 years of experience in the Brazilian footwear market, Vulcabras Azaleia is a holding company of leading brands and focuses on innovation.

The company operates through three business divisions: sports, comprising the Olympikus and OLK brands, female, with Azaleia, Dijean and Opanka brands, and Vulcabras Boots. There are over 1,000 models developed and more than 15 thousand active employees spread across five sites in Brazil (factories in Horizonte-EC, Itapetinga-BA and Frei Paulo-SE, a development center in Parobé-RS, an administrative center in Jundiaí-SP) and two branches/distribution centers in Peru and Colombia.

Vulcabras does not want to just sell shoes or sporting goods, but fulfill the desire of its customers, whether it be to make the best purchase, through the best cost-benefit ratio of the market, or through a fashion icon product or a unique technology.

Net Revenue

In 3Q17 the net revenues reached R$ 343.9 million, increasing 11.5% over 3Q16's R$ $308.3 million.

In the nine months of the year ended September 30, 2017 the net revenue was R$ 948.4 million, 14.7% higher than the same period in 2016, when the net revenue was R$ 827.1 million.

The net revenues growth in 3Q17 was driven by better performance in sales of sports shoes leveraged by a greater penetration in the domestic market distribution. The increase in the demand for athletic shoes against the drop in the demand for women footwear made us review our sales strategy and we decided to transfer the productive capacity of women footwear to sports shoes, causing the drop in sales in the female sector against last year. Thus, we worked in 3Q17 at full capacity in the factories.

R$ Million	3Q17	Share %	3Q16	Share %	Var. % 3Q17 / 3Q16	9M17	Share %	9M16	Share %	Var. % 9M17/9M16
Athletic footwear	274.4	79.8%	226.0	73.3%	21.4%	746.4	78.7%	610.5	73.8%	22.3%
Women footwear	48.2	14.0%	60.3	19.6%	-20.1%	132.7	14.0%	155.1	18.8%	-14.4%
Other footwear and other	16.7	4.9%	18.3	5.9%	-8.8%	54.7	5.8%	51.4	6.2%	6.4%
Clothing	4.6	1.3%	3.7	1.2%	24.3%	14.6	1.5%	10.1	1.2%	44.6%
Total Net Revenue	343.9	100.0%	308.3	100.0%	11.5%	948.4	100.0%	827.1	100.0%	14.7%

Net Revenue by category (R$ million)

274.4

Net Revenue by category (R$ million)

746.4

226.0 3Q16

3Q17

610.5

9M16

9M17

60.3

48.2

18.3 16.7

3.7

4.6

155.1

132.7

51.4

54.7

10.1

14.6

Athletic	Women	Other footwear	Clothing		Athletic	Women	Other footwear	Clothing
footwear	footwear	and other	footwear	footwear	and other