2Q18 PRESS RELEASE

1

CONFERENCE CALL

(only in Portuguese)

Date: August 13th, 2018

at 9 am BRT/ 8 am US ET/

1 pm London

Phone:

Dial-in Brazil: +55 11 3193-1001

Code: Alpargatas

Presentation:

http://ri.alpargatas.com.br

Speakers:

Márcio Utsch

CEO

Fabio Leite

CFO

fabiols@alpargatas.com.br

biehl@alpargatas.com.br

flucas@alpargatas.com.br

fyuri@alpargatas.com.br

http://ri.alpargatas.com.br

2Q18 PRESS RELEASE

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1. QUARTER HIGHLIGHTS

Organizational Structure

From 2018, the company has had the full structure needed to fulfill its ambition of growing the Havaianas

brand even further in Brazil and in the international market. The Havaianas structure is divided into five

markets: Brazil, EMEA, North America, APAC (Asia & Pacific), LATAM & Africa. These markets are

supported by the global Marketing and Havaianas Products, Design and Innovation and Planning and

Business Analysis areas, responsible for developing content, guidelines and sharing best practices for the

Havaianas and Dupé brands in these regions.

Digital Director

Also new is the creation of the Digital Executive Director position over the coming months, which will have

the challenge of driving modernization and promoting the digital transformation which will support the

growth of the company and its brands, integrating cultures and accelerating business expansion.

Strategic Consulting

Review of the Havaianas Strategic Plan

With support from a renowned international consultancy, we are reviewing the Havaianas strategic plan

which encompasses accelerating internationalization and capturing levers for growth in Brazil.

Go-to-Market

In the course of the quarter, a specialized consultancy worked together with the Havaianas team analyzing

the go-to-market model for Brazil. This work resulted in recommendations for optimizing channel strategy.

2Q18 PRESS RELEASE

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Human Resources

New Trainee Program

On August 6, the new Alpargatas Trainee Program was launched. The 15-month program will begin in

January 2019. In the course of the program, the trainees will participate in a series of activities aimed at

developing their technical, business and interpersonal skills, enabling them to assume the position of senior

analyst upon completion of the program. The objective of the Alpargatas trainee program is to develop

talent and prepare individuals to be future leaders.

CAPEX

Consolidated investments in expanding the business and maintaining operations (capex) totaled R$ 21,3

million in second quarter of 2018, of which R$ 11.7 million was dedicated to expanding retail operations in

Brazil and overseas, and R$ 9.6 million went towards the modernization of machinery and equipment and

technological updating.

Transportation Strike

The transportation strike in Brazil at the end of May affected raw material supplies to the factories. The

company rapidly decided to suspend production and give collective holidays of between 7 and 10 days,

depending on the unit, to minimize the effects of the strike. Equipment maintenance was also brought

forward to this period.

In Brazil, the billing of about 4 million pairs of sandals was deferred in June, together with 60,000 pairs of

Mizuno footwear. However, in spite of this adverse conjuncture, 2Q18 saw double digit growth in sandals

volume in Brazil.

In the overseas market the impact was proportionally more significant, with a volume of 1 million pairs of

sandals pending shipping at the end of the quarter. It should be noted that there were no cancellations of

customer orders.

According to internal estimates, the negative effect in sell-out occurred during the course of the strike and

shortly afterwards, until supply was normalized.

2Q18 PRESS RELEASE

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Consolidated Performance in Second Quarter 2018

2Q18 PRESS RELEASE

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2. SALES VOLUME

Havaianas Sandals and Brand Extension Products

Even though part of the billing volume was deferred due to the transportation strike (around 4 million pairs),

Havaianas and Dupé volume grew 21.5% in the domestic market during the quarter, the result of better

product turnover at customers and the launch of the new Havaianas collection, which performed well.

The overseas market was also affected negatively by the transportation strike in Brazil, which jeopardized

shipments, particularly to Latin America and Asia & Pacific (1 million pairs).

Sporting Goods and Textiles

2Q18 PRESS RELEASE

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Mizuno presented a drop in sales volume due to the shipments not undertaken during the strike (60

thousand pairs) and to the non-confirmation of orders as a result of this event.

In Argentina, sports footwear sales volume continued to climb with Topper imports, which, as has been

commented in other reports, has enabled the effective fulfillment of demand for higher added value

products.

Osklen

Sales volume in the direct consumer channels grew during 1H18; however, in the indirect channels

(franchises and multibrand) there was a reduction due to the transportation strike and isolated cases of

franchisee default. Year to date, volume dropped 3% compared with the same period of 2017.

3. NET REVENUE

In Brazil, the increase in Havaianas revenues offset the drop in the other businesses during the second

quarter.

Osklen net revenue was slightly lower than the same period of last year. The growth in revenue in all the

direct channels (retail, outlet and e-commerce) was responsible for the higher average price during the

quarter. Worthy of note was the growth of 5.1% in same stores sales (SSS) and 47% in e-commerce.

2Q18 PRESS RELEASE

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In Sandals International, net revenue in reais, which benefited

from the appreciation of the dollar and the euro, was 4.6%

higher than in 2Q17, even with the drop in revenue in local

currency in three of the four regions. 3

In Argentina, revenue in pesos grew by 17.8%, mainly due to the performance of the footwear business. In

reais, revenue was lower as a result of the 24.2% appreciation of the real against the peso (compared with

2Q17).

During the quarter, growth in Alpargatas retail revenues on a same store basis was:

Havaianas (franchises and company-owned stores in Brazil): 4.6%.

Osklen: 5.1%.

4. GROSS PROFIT

In spite of the impact of the transportation strike on production, consolidated gross profit in 2Q18 grew 6.8%

with a 1.4 p.p. gain in gross margin. The main driver was the higher share of the Sandals business in the

company total, with an increase from 62% to 66% in the quarter.

2Q18 PRESS RELEASE

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In Brazil, Havaianas saw a gain in gross margin with an increase in share from 65% to 70% of revenue,

offsetting the decrease in margin in the other businesses in 2Q18.

There was an increase in gross margin in Sandals International due to the exchange rate effect.

5. RECURRING EBITDA

In 2Q18, consolidated recurring EBITDA grew 12.4% and margin increased by 0.8 p.p. compared with the

same period in 2017. The main extraordinary items in the second quarter were: labor severance payments

in Argentina due to restructuring to adapt to the macroeconomic situation in the country, provisions for

success fees related to contingencies and consulting expenses.

Sales Expenses

Sales expenses, which include freight, advertising, marketing, commissions, royalties and licenses totaled

R$ 282.9 million in 2Q18. This represented 31.8% of net revenue, 0.5 p.p. below 2Q17. Freight expenses

corresponded to 3.5% of net revenue, remaining practically stable compared with the second quarter of

2017. Some international structures were still under implementation in 2Q18 and have not yet incremented

net revenue for the company: establishment of the Latam structure, repositioning of the US office, new

overseas stores, the opening of offices in Colombia and Hong Kong.

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General and Administrative Expenses

General and administrative expenses totaled R$ 55.3 million in the second quarter. This corresponded to

6.2% of net revenue, 0.2 p.p. lower than the year ago period. This reduction reinforces the company’s

constant commitment to boosting efficiency and profitability.

6. NET INCOME

Consolidated net income in the quarter totaled R$ 18.3 million, with a margin of 2.1%. The most significant

variations in the consolidated net income in 2Q18 were:

R$ 8.5 million less in EBITDA, the variation in which is explained in chapter 5;

R$ 12.9 million less in income tax, due to the credit in Argentina in 2Q17 stemming from the reduction in

the 2016 calculation base as a result of the recognition of the inflation in the net monetary assets of

liabilities;

R$ 12.9 million less in financial result/exchange rate variation, comprising:

o R$ 12.8 million increase in the financial result;

o Negative exchange variation of R$ 25.7 million, primarily in Argentina.

2Q18 PRESS RELEASE

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7. NET FINANCIAL POSITION

On June 30, 2018, Alpargatas had a net financial position of R$ 39.9 million, the result of a cash balance of

R$ 657.4 million (operating generation totaled R$ 563.3 million in the 12 months ending in June 2018) and

indebtedness of R$ 617.4 million, with the following profile:

R$ 282.5 million (46% of the total) due in the short term, of which R$ 76.7 million in Brazilian currency.

Short-term debt in foreign currency totaled R$ 205.8 million, with swaps for reais for R$ 34.7 million of

this amount, which was used mainly to finance working capital for the overseas subsidiaries. It should

be noted that R$ 124.2 million of the company’s cash balance is in foreign currency.

R$ 334.9 million (54%) due in the long term, all of which in Brazilian currency.

2Q18 PRESS RELEASE

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MARKET / BUSINESS UNIT HIGHLIGHTS

8. SANDALS

BRAZIL

Traditionally, the months of April and May are characterized by low stocks in the sales chain while it

awaits the launch of the new collection in June. The launch of the collection was a success, with an

improvement in customer sell-out and a consequent double-digit increase in sandals volume (sell-in).

The indirect channels had a larger share in total revenues during the quarter, which reduced the average

price in Brazil. This was in addition to the reinforcement of the entry level product portfolio at the end of

2017.

NORTH AMERICA

As part of the restructuring of the North American operation, there was a reduction in sales in the less

profitable channels in the United States (wholesale and off price), in events, as well as in e-commerce in

Canada, where freight costs were making this channel unfeasible.

EMEA (Europe and Middle East)

In 2Q18, net revenue in local currency in EMEA was slightly higher than last year, improving +1.5%, the

result of improved performance in France and Germany.

LATAM (Latin America) & AFRICA

The operation in Latin America was impacted by the transportation strike in Brazil at the end of May,

which impeded the shipment of around 200,000 pairs to the region.

APAC (Asia and Pacific)

Asia and Pacific was the region worst hit by the strike, with the non-shipment of around 800,000 pairs

during the quarter.

9. SPORTING GOODS

In Sporting Goods, orders for 60,000 pairs of footwear were deferred as a result of the transportation

strike.

There were promotions in sporting goods in Brazil throughout the second quarter because the categories

not associated with soccer were penalized during this period.

2Q18 PRESS RELEASE

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10. OSKLEN

During the quarter, operating cash generation for Osklen improved compared with last year, as a result of

better working capital management, with a reduction in default and improved stock management.

Highlights:

acceleration in the digital channel and integration with the physical stores, with double-digit growth

over last year, reaching 43.7% in 1H18;

growth for the 4th consecutive quarter on a same store sales basis. Growth of 5.1% compared with

2Q17

11. ARGENTINA

The situation in Argentina remains unsettled. At the beginning of the quarter, sporting goods sales were

strong. In April the peso suffered heavy devaluation, which led to a drop in sell-in, while sell-out was

maintained. However, at the end of the quarter the exchange rate impacted prices, leading to a fall in sell-

in and sell-out.

In view of this adverse conjuncture, with help from a specialized consultancy Alpargatas has adopted a

series of measures to minimize the macroeconomic impact on the footwear business: control over working

capital, re-assessment of the manufacturing operation and the importation of finished goods.

Textiles: volume continues to decrease due mainly to the competition from imported products.

12. CAPITAL MARKET AND SHAREHOLDER COMPENSATION

On June 30, 2018, the company’s preferred shares (ALPA4) were quoted at R$ 12.10, and the ordinary

shares (ALPA3) at R$ 11.49, respectively 29.6% and 31.6% lower than on March 31, 2018. From March

to June, Ibovespa depreciated by 14.8%. At the close of 2Q18, Alpargatas was valued at R$ 5.5 billion on

the B3 exchange, 16.6% down on the year ago period. The average daily volume of ALPA4 shares traded

in the second quarter was R$ 9.0 million, 11.5% lower than the daily average for the year ago period.

In a meeting held on August 10, 2018, the Board of Directors decided on an advance of interest on own

capital amounting to R$ 37.6 million, to be paid on September 18, 2018. Alpargatas’ shareholder

compensation has totaled R$ 110.6 million to date in 2018.

2Q18 PRESS RELEASE

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13. INDEPENDENT AUDITORS

In the period from April to June 2018, no services other than those related to external audit were

contracted from KPMG.

14. DECLARATION FROM THE BOARD

In accordance with article 25, paragraph 1, item 5 of CVM ruling nº 480/09, the Board hereby declares that

it has reviewed, discussed and agreed with Alpargatas S.A.'s accounting information for the second

quarter of 2018 and with the review report from the independent auditors.

São Paulo, August 10, 2018

Board of Directors

2Q18 PRESS RELEASE

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BALANCE SHEET

(in thousand reais)

ASSETS 06/30/2018 06/30/2017

Current assets 2,275,490 2,152,961

Cash and banks 133,344 110,222

Tempory cash investment 524,030 289,108

Trade accounts receivable (net of provisions) 733,204 776,785

Inventories 753,747 794,898

Other receivables 27,153 47,180

Prepaid expenses 33,027 35,119

Assets held for sale - -

Other assets - -

Recoverable taxes 70,985 99,649

Assets from discontinued operations - -

Long-term assets 215,181 189,037

Recoverable taxes 26,264 54,257

Deferred income and social contribuition taxes 135,778 61,727

Escrow deposits 38,967 22,641

Other receivables 14,172 50,412

Permanent Assets 1,188,161 1,366,694

Investments 2,316 1,142

Property, plant and equipment 702,129 736,222

Intangible 483,716 629,330

TOTAL ASSETS 3,678,832 3,708,692

LIABILITIES 06/30/2018 06/30/2017

Current liabilities 1,023,122 1,132,862

Suppliers 351,218 364,178

Loans and financing 282,506 384,293

Debt reestructuring agreements 2,354 5,315

Payroll and related charges 128,104 152,247

Reserve for contingencies 15,733 16,486

Provision for income and social contribuition taxes 26,563 23,956

Taxes payable 18,567 19,441

Interest on capital and dividends payable 36,832 36,094

Other payable liabilities 161,245 130,852

Liabilities on assets from discontinued operations - -

Long-term liabilities 453,989 335,317

Loans and financing 334,920 187,542

Debt reestructuring agreements 10,703 23,962

Provision for taxes - -

Taxes Installments - -

Provision for income and social contribuition taxes 50,356 59,445

Reserve for contingencies 21,406 36,727

Other payable 36,604 27,641

Shareholders' equity 2,201,721 2,240,513

Capital 648,497 648,497

Capital reserves 172,799 172,799

Treasury shares (64,248) (64,248)

Profit reserves 1,540,406 1,533,098

Equity assessment (166,964) (131,717)

Hedge operation - -

Additional dividend - -

Minority interest 71,231 82,084

TOTAL LIABILITIES 3,678,832 3,708,692

Book value per share (R$) 4.60 4.66

2Q18 PRESS RELEASE

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INCOME STATEMENT

(in thousands of Brazilian reais)

2Q18 2Q17 1H18 1H17****

Net Sales 890,583 859,584 1,792,667 1,667,044

Cost of sales (472,719) (468,219) (965,969) (925,453)

Gross Profit 417,863 391,365 826,698 741,591

gross margin 46.9% 45.5% 46.1% 44.5%

Operating Income (Expenses) (379,618) (342,821) (644,447) (469,173)

Selling (282,893) (277,570) (527,290) (497,815)

General and administrative (52,671) (52,733) (102,560) (104,796)

Management fees (2,607) (2,106) (7,535) (6,724)

Amortization of intangible charges (8,835) (6,564) (16,846) (13,958)

Other operating Income (expenses), net (32,611) (3,848) 9,785 154,120

EBIT - Operating Results 38,245 48,544 182,251 272,418

operating margin 4.3% 5.6% 10.2% 16.3%

Financial Result (3,390) (15,377) (12,090) (24,906)

Exchange variation (27,906) (2,971) (33,355) (5,862)

Operating Income 6,949 30,196 136,806 241,650

Income and social contribution taxes 11,324 24,222 (5,653) (5,794)

Net Income from continuing operations 18,273 54,418 131,154 235,856

Net result from discontinued operations - - - (1,674)

Consolidated net income 18,273 54,418 131,154 234,182

Net Income from controlling shareholder 22,533 55,977 136,605 241,824

Minority Interest (4,260) (1,559) (5,452) (7,642)

EBITDA - R$ million 64.1 72.6 233.2 320.5

EBITDA margin 7.2% 8.4% 13.0% 19.2%

2Q18 PRESS RELEASE

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CASH FLOW

(in thousand reais)

CASH FLOW FROM OPERATING ACTIVITIES 06/30/2018 06/30/2017***

Cash from operating activities 235,518 249,465

Net income for the period 131,156 235,856

Depreciation and amortization 50,574 48,120

Income (loss) from disposal/derecognition of property, plant and equips. 4,702 8,728

Equity pickup 0 0

Interest and Monetary and foreign exchange variation 21,551 24,432

Provisions for tax, civil contingencies and labor claims 8,661 8,098

Provisions for income tax and social contribution 25,233 29,985

Deferred income and social contribuition taxes -18,654 8,170

Suspended taxes payments 0 -198,624

Allowance (reversal of) for doubtful accounts 8,515 10,678

Provision for (reversal of) inventory losses 7,112 8,140

Amortization of charges on loans and financing - -

Unrealized gains/losses on derivative transactions - -

Gain/loss in operation with derivatives 0 0

Stock option plan granted 0 0

Remeasurement adjustment - 1st acquisition Osklen 0 294

From sale of Real property 0 0

Provision for Impairment of property, plant and equipment/Intangible assets 0 14,337

Remeasurement od asset for sale 0 0

Osklen Impairment Adjustment 0 0

Net cash spent in discontinued operations 0 51,251

Correction of legal deposits -10,501 0

Provision for success fees 7,169 0

Changes in assets and liabilities -5,189 -229,023

Trade accounts receivable 137,122 153,050

Inventories -102,643 -152,883

Prepaid expenses -21,474 -23,160

Taxes recoverable -4,293 -70,215

IPI tax credit receipt 37,031 0

Trade accounts payable -7,647 -60,967

Taxes payable -10,501 -30,183

Payroll and social charges 3,870 -9,820

Payment of income and social contribuition taxes -16,315 -27,415

Operations with derivatives -587 -641

Amortization of loans and financing -36,467 -25,396

Contingencies -26,308 -6,297

Other 43,023 24,904

NET CASH - OPERATING ACTIVITIES 230,329 20,442

2Q18 PRESS RELEASE

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CASH FLOW FROM INVESTING ACTIVITIES 06/30/2018 06/30/2017

Acquisition of property, plant and equipment and intangible assets -30,616 -63,348

Short-term investments -110,801 -59,010

Redemption of Financial Investments 113,988 144,443

Receivable from sale of permanent assets 0 0

Acquisition of Investments 0 0

Initial Cash Balance of controlled company 0 0

NET CASH - INVESTING ACTIVITIES -27,429 22,085

CASH FLOW FROM FINANCING ACTIVITIES

Loans and financing raised 203,983 101,937

Amortization loans and financing - Principal -319,547 -121,695

Payment of dividends and interest on equity -138,563 -42,883

Amortization through debt restructuring of subsidiary -4,913 -3,035

Acquisition shares to be held in treasury, net 0 0

NET CASH - FINANCING ACTIVITIES -259,040 -65,676

Exchange gains (losses) on cash and cash equivalents 6,283 1,965

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -49,857 -21,184

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 629,238 391,347

CASH AND CASH EQUIVALENTS AT END OF PERIOD 579,381 370,163