cia. hering - 2q16 results

2Q16 Results Conference Call

July 29th, 2016 – 11:00 am (BrT) 10:00 am (NY)/ 3:00 pm (London)

2Q16 Results

DISCLAIMER

This presentation contains forward-looking statements regarding the

prospects of the business, estimates for operating and financial

results, and those regarding Cia. Hering's growth prospects. These are

merely projections and, as such, are based exclusively on the

expectations of Cia. Hering management concerning the future of the

business and its continued access to capital to fund the Company’s

business Plan. Such forward-looking statements depend, substantially,

on changes in market conditions, government regulations,

competitive pressures, the performance of the Brazilian economy and

the industry, among other factors and risks disclosed in Cia. Hering’s

filed disclosure documents and are, therefore, subject to change

without prior notice.

• Financial Performance

• Outlook

• Q&A

2

FINANCIAL PERFORMANCE

GROSS REVENUES AND BREAKDOWN BY BRAND

R$ MILLION

GROSS REVENUES BREAKDOWN PER CHANNEL

DOMESTIC MARKET EX-OTHER REVENUES

2Q16, R$ MILLION – CHANGE 2Q16 X 2Q15

Gross Revenue of R$ 430.6 million in 2Q16, impacted by weaker performance

of both franchise and multibrand and better sales to final costumer.

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2Q16 2Q15 Change 1S16 1S15 Change

430.6 442.9 -2.8% 797.6 848.7 -6.0%

317.0 330.2 -4.0% 591.6 632.8 -6.5%

53.9 51.7 4.3% 99.4 96.5 2.9%

29.3 32.0 -8.5% 55.2 64.3 -14.1%

18.4 24.2 -24.0% 32.7 45.1 -27.5%

13.8 12.3 12.7% 22.9 21.5 6.3% International Market

HERING STORE NETWORK

GROSS SALES

SELL-OUT, R$ MILLION

Gross revenues of R$ 359.1 million (-6.5%), reflecting SSS

performance, impacted by consumer traffic reduction at the

stores and lower number of visits.

¹ Stores opened in the last twelve months net from closings.

4

STORE REFURBISHMENT PLAN

• Nearly 100 stores planned for the year

• 18 remodeled stores in the first half

Hering Store Franca – SP State

Owned stores better performance compared to franchise

network, favored by:

• best execution and supply strategy in owned store;

• lower markdown in franchise, favoring channel profitability

(inventory adjustment campaign in 2015).

SSS DYNAMICS


EBITDA of R$ 61.4 million (-7.8%) explained by

sales retraction and operational deleveraging.

Gross margin decline (-200 bp) due to sales decrease

insufficient to dilute fixed costs.

GROSS PROFIT

R$ MILLION

EBITDA

R$ MILLION

5


NET INCOME

R$ MILLION

CAPEX

R$ MILLION

Operating income decline offset by financial income

of R$ 10.5 mm (+53.2% vs 2Q15), higher Company's average

cash and Income Tax and Social Contribution benefits.

Lower investments in Industrial Plants after the launch of

manufacturing plant and DC expansion and modernization in Goiás

and in IT after the conclusion of SAP implementation.

6


Cash flow of R$ 85.0 million, R$ 68.6 million higher than 2Q15, as a result of a reduction in working capital

needs, notably in inventories and suppliers, Capex decrease and lower income tax and social contribution.

CASH FLOWS

R$ MILLION

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Cash Flow - Consolidated 2Q16 2Q15 Chg. 1S16 1S15 Chg.

EBITDA 61,376 66 ,557 (5 ,181) 97 ,867 113,698 (15,831)

No cash items (1,546) 3,027 (4,573) 2,066 15,074 (13,008)

AVP (Adjustment to Present Value) - Clients and Suppliers 5,145 4,498 647 10,857 9,473 1,384

Current Income tax and Social Contribution 2,150 (3,549) 5,699 (1,645) (11,187) 9,542

Working Capital Capex 22,010 (24,906) 46 ,916 84,778 11 84 ,767

(Increase) decrease in trade accounts receivable (30,480) (23,508) (6,972) 92,722 93,506 (784)

Decrease (increase) in inventories 22,948 10,111 12,837 12,570 (31,231) 43,801

Increase (decrease) in accounts payable to suppliers 24,581 (3,318) 27,899 (12,748) (26,273) 13,525

(Decrease) in taxes payable (10,045) (10,614) 569 (16,625) (27,966) 11,341

Refurbishment Project 2016 - Franchisee Financing 185 - 185 (2,495) - (2,495)

Others 14,821 2,423 12,398 11,354 (8,025) 19,379

CapEx (4 ,121) (29 ,184) 25 ,063 (9 ,955) (43 ,143) 33 ,188

Free Cash Flow 85,014 16 ,443 68 ,571 183,968 83,926 100,042

OUTLOOK

• Recessionary macroeconomic scenario should still affect the company's performance in the short term. However, expectations on economic recovery from the year-end on may favor business environment

• Challenges in revenue growth

• Protege Goiás Fund– additional expense of R$ 4.5 – 5.0 million per quarter

• Product and Store (“P&S”) fronts, remain priority in the year:

• Product: collections of 2nd half already show improvements, supported by point of sale and communication strategy

• Stores: shopping experience supported by Stores Refurbishment and VM and supply fronts

• Strong free cash flow generation in the year, good profitability levels and comfortable financial position despite economic environment difficulties – resilient business model.

9

Fabio Hering – CEO Frederico Oldani – CFO and IRO

Bruno Salem Brasil – IR Manager Caroline Luccarini – IR Analyst

www.ciahering.com.br/ir +55 (11) 3371 – 4867/4805

[email protected]

INVESTOR RELATIONS TEAM

cia. hering - 2q16 results

Investor Relations