FINANCIAL STATEMENTS Management Report 3. Balance Sheets 6. Income Statements 18. Statements of Comprehensive Income 19

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2 FINANCIAL STATEMENTS 2016 TABLE OF CONTENTS Management Report 3 Balance Sheets 6 Income Statements 18 Statements of Comprehensive Income 19 Statements of Changes in Equity - Parent Company and 20 Statements of Cash Flows 21 Statement of Value Added 22 Explanatory Notes to the Financial Statements of Board of Directors, Board of Executive Officers, Fiscal Council and Controlling 66 Opinion of the Audit and Risk Management Committee Independent Auditor s Report on Individual and Financial Statements Opinion of the Fiscal Council 72 Management Proposal for Capital Expenditures Budget 73 Statement from the Board of Executive Officers on the Financial Statements 74 Statement of the Board of Executive Officers on the Report of the Independent Auditors 75 2

3 MANAGEMENT REPORT MESSAGE FROM THE MANAGEMENT Overcoming challenges. This is what best defines 2016 for Lojas Renner. In the light of a recessive economy and a grave political crisis in Brazil, our belief was reinforced as to the capacity of strong brands with clear and competitive differentials and a consistent value proposition in maintaining a trajectory combining growth with profitability even under adverse circumstances. This is a reflection of our closeness to our customers, our fashion knowhow and a set of daily practices constantly being fine-tuned and focused on simplicity and operating efficiency. The combination of these factors has been instrumental in neutralizing inflationary pressures as well as additional expenses stemming from the resumption of social tax debits to payroll and new projects. In addition, we continued to upgrade our operations on the logistics front, achieving greater proximity with the stores and in the area of product quality and provision of a better shopping experience for our customers. Consequently, Renner was able to report an expansion in operating margins and growth in cash generation, with maintenance of the profitability levels close to those recorded in Net Revenue from Merchandise Sales was R$ 5.7 billion, the Gross Margin from the Retailing Operation reaching 55.8% while the Total Adjusted EBITDA Margin reported 23.4% and Net Income, a growth of 8.0%. Initiatives taken over the last few years in the granting process, the updating of credit limits and for collection strategy contributed to the result from financial products, which grew 20.6%, with non-performance of the Renner Card showing improvement. Another important milestone during the year was the authorization to constitute a financial institution. The necessary steps for incorporation are underway and expectations are that by the end of 2017, the Company will have its own structure, to be known as Realize Crédito, Financiamento e Investimento S/A. By supporting the core retailing business alone, once this new business is up and running, we shall enjoy greater flexibility, agility and transparency in the management of financial products. A further important event during the year was the review of the store opening plan with the expansion of 408 target to 450 Renner units in operation by We also announced the first operations outside Brazil in Uruguay with store openings scheduled as from the second half of In the case of Camicado, the target of 125 stores was maintained, while at Youcom we still visualize a potential for opening 300 units by The annual investment program was implemented as planned, totaling R$ million. This includes the opening of 64 stores under the Renner, Camicado and Youcom flags and the modernization of a further 14 units. The expansion of our corporate head office, with the construction of an additional 32.7 thousand m² and adhering to the best practices of sustainability, will allow increased process optimization. The design, procurement and planning teams will now be working physically together in the new premises, thus contributing to agility in the process for designing and developing collections. We continue alert to the potential impacts of new technologies in our businesses by maintaining investments in structural projects of a transformational nature to ensure our competitiveness. In logistics, we concluded a period of three years of investments with an injection in excess of R$ 200 million for automation of two distribution centers (in the states of Rio de Janeiro and Santa Catarina) and for the acquisition of equipment. The entire structure has been prepared to operate the so-call push pull supply system, the improved economies of scale now beginning to ensue. This will translate into gains in efficiency of product distribution and decreased stockouts and markdowns. In August, without significant disruption, Renner concluded the upgrading of the ERPs all commercial management and back office systems. More robust, advanced and agile, the new technological platform will enhance the level of commercial and store management. This was a critical step in growth strategy since the new system will, among other benefits, allow the incorporation of a larger number of stores, operation of overseas units and the offer of new services with greater flexibility for e-commerce transactions as well as qualifying us in the use of new technologies. Lojas Renner s performance can also be ascribed to investments in the upgrading of supplier skills through the Reactivity Project, the Suppliers Development Program and the introduction to the Company s leading partners of the Lean Manufacturing concept. These actions have instilled greater productive efficiency together with socio-environmental responsibility, thus strengthening a relationship of long-term trust and partnership. Mention should also be made of Camicado s new strategy for visual merchandising and selection of products with greater value added, both of which have contributed to the results of the store network, already with a presence in 20 states in Brazil. Similarly, Youcom, our business which specializes in fashion for the young consumer, has continued to invest in improvements in the development of the collections, consolidating its brand name nationwide and through more advantageous negotiations, seizing opportunities in shopping malls. 3

4 During the year, we also intensified e-commerce sales and launched our own plus-size brand, available only from our online store. Ashua Plus & Curve Size was our first initiative developed entirely for the on-line universe, enabling us to explore an increasingly important market in Brazil in a different and innovative manner. At both Camicado and Youcom, we have also implemented new services for the online environment resulting in important improvements in the customer shopping experience. For the third consecutive year, we were selected as components of the ISE portfolio, BMF&BOVESPA s Corporate Sustainability Stock Index. Inclusion in this index reflects the commitment to financial results, social development and reduction in environmental impact, always acting in line with the best practices of corporate governance. In 2016, Lojas Renner was also recognized in the Dow Jones Sustainability Indices (DJSI/RobecoSAM), ranking the Company s sustainability management as 14 th in the worldwide retailing sector. The company also obtained a Leadership classification in the Carbon Disclosure Project (CDP). During the year and for the first time, we successfully neutralized 100% of our disclosed greenhouse gas emissions. In 2016, the percentage of Renner s employee engagement was 87%, well above the level recorded for the Brazilian retailing sector and global fashion retailing, which was 64% and 54%, respectively. This result is particularly significant since it ranks us in a highperformance zone among all globally monitored companies and sectors according to surveys conducted by AON Hewitt, a human resources consultancy. The Company was also rated among The 150 Best Companies for You to Work For, an award sponsored by the specialized magazine Você S/A. The Renner brand was ranked as the 13 th most valuable in Brazil by Interbrand, reporting a 17% increase in brand value during the year. With our focus on the long term, we will continue investing in the expansion of the physical stores and in e-commerce as well as in the consolidation of the Camicado and Youcom brands. Irrespective of the economic and political scenario, we will also maintain our pursuit of increases in productivity and expanded operational margins. We believe that there are opportunities for consistent growth based on our business model and the structural projects being implemented when set against the context of a highly fragmented sector. Our thanks go to the shareholders, employees, customers and suppliers for the trust placed in this Company. Osvaldo Burgos Schirmer Chairman of the Board of Directors José Galló Chief Executive Officer 4

5 RELATIONSHIPS The year 2016 was characterized by a new dynamic in corporate Brazil s decision-making process. On the one hand, companies were obliged to wrestle with the macroeconomic uncertainties while on the other, maintaining their faith in the future. At Lojas Renner, this process was no different: the company focused its efforts on managing the businesses with austerity, compensating inflationary pressures and additional expenses accruing from changes in tax treatment. Thus, all projects and investments were analyzed to ensure the profitability of the operations and the continued construction of the structural projects to guarantee competitiveness irrespective of scenario. To this end, Lojas Renner continued to pursue its objectives, respecting and enchanting all its stakeholders. WITH CUSTOMERS The economic scenario during the year brought with it additional challenges in the interaction with customers. The reduced customer traffic through Brazilian shopping malls together with a low consumer confidence led Lojas Renner to pay even closer attention to the details which make each point of contact with the customer such a singular moment. The expectations of customers that visit the stores must be exceeded in order to stand out. The high degree of satisfaction recorded over the years by the Enchantmeters - equipment for measuring customer satisfaction - reflects the Company s accomplishment in this respect. The information recorded in this equipment also serves as an important management tool at Renner, flagging up opportunities for improvement based on customer feedback. In order to measure the level of customer service, over the past 20 years, a total of 775 thousand stories of enchantment were recorded. These are real-life situations experienced at our stores where customers are surprised by initiatives taken by our employees. All these stories have been formally recorded since 1996, and the best are recognized at events held at Lojas Renner s headquarters. WITH INTERNAL STAKEHOLDERS One of the principal strengths of this business is a trained and engaged team, aligned to the Lojas Renner culture. The company has a total headcount of 18,079 including the Renner, Camicado and Youcom businesses, distributed throughout Brazil, transmitting the enchantment of Lojas Renner to all stakeholders. People represent the Company s essence. Renner provides opportunities so that all employees can be protagonists of their own career and development and where talents that show outstanding performance are valued and recognized. In 2016, the Trainees program drew 77.6% from inhouse human resources, a total of 223 new leaders graduating during the course of the year. The Company develops its leadership as formers of leaders and guardians of the corporate culture. To this end, it invests continually in structured programs for training and career monitoring. The Company also operates a well-structured Succession Program for identifying and developing potential successors for all key positions. Throughout 2016, the training programs placed great emphasis on instilling an increasingly greater degree of specialization in the business teams. During the period, considerable focus was placed on the Culture pillar with a view to stimulating the development of essential behaviors for the Company s business model. With a high degree of internal stakeholder engagement (87%), Renner was also recognized in the following awards and rankings: Company of Value of the newspaper Valor Econômico, one of Guia Você S.A. s 150 Best Companies for You to Work For, Valor Carreira s The Best in the Management of People and the Best in Retailing in Exame magazine s Sustainability Guide. WITH SUPPLIERS The management of the retail suppliers chain is a key component of Renner s business given the dimension and relevance of this element to the business. As such, the Company operates a dedicated structured area for supplier relationships. This incorporates initiatives which range from engagement and the raising of awareness to monitoring, evaluation and development of suppliers. In addition, a program has been developed to disseminate the theme of Social Responsibility among suppliers and their subcontractors, so making their Conformity processes similar to those of Renner itself. 5

6 In 2016, we expanded the evaluation of suppliers through the monitoring of the global performance indicator. This was extended to the entire apparel supply chain and included financial analysis as a requisite for evaluation. Again, the Company continued to monitor social risks through constant audits focused on social responsibility at domestic suppliers and their subcontractors. The entire chain for manufacturing, footwear and accessories was audited, representing a total of 3,925 audits. In addition, in its second year of operations, the LRS (Shanghai) Trading Co. Ltd. subsidiary has increased its relative importance among the trading companies Renner uses, now ranking among its leading suppliers in the international market. LRS performs the role of procurement, quality control and the prospecting of new suppliers in Asia. WITH THE COMMUNITY AND THE ENVIRONMENT In 2016, Lojas Renner s commitment to sustainable development was aligned to the business strategy through four strategic guidelines for sustainability, each with objectives common to the business areas: Responsible Suppliers; Ecoefficient Management; Employees, Customers and Community Engagement; and Sustainable Products, as well as the incorporation of the sustainability theme in the Company s Mission Statement. The Company continued to be a component of BM&FBOVESPA s Carbon Efficiency Index Portfolio (ICO2). Renner also obtained a Leadership classification in the Carbon Disclosure Project (CDP) an international organization made up of approximately 770 investors. In 2016, for the first time, 100% of disclosed greenhouse gas emissions were neutralized. Again in 2016, Renner launched a reverse logistics pilot project for apparel, which employs the upcycling concept. Its aim is to increase awareness on post-consumption together with the promotion of female entrepreneurship and income creation among socially vulnerable productive groups. Along these same lines, Youcom s Jeans for Change project was expanded at an event in the city of São Paulo with the collection of 2,000 pairs of jeans for reuse during the course of Lojas Renner s partnership with UNO Women was extended to the Sewing School. This program has been run by the Instituto Lojas Renner since 2011, its key aim to be the training of women in industrial sewing activities. During the year, the Sewing School held its first group class for women refugees from Angola, Congo, South Africa and Nigeria, part of the Women s Refugee Empowerment project: a partnership with the Global Compact, ACNUR, UNO Women and PARR (Program for Refugee Resettlement Support). WITH SHAREHOLDERS AND INVESTORS In July 2005, Lojas Renner was the first company in Brazil with 100% of its shares traded on the BM&FBOVESPA without a controlling shareholder. In the Corporate Governance model adopted since then, the strategic guidelines are laid down by the Board of Directors supported by four Committees: People, Sustainability, Audit and Risk and Strategic. Operating activities in turn are the responsibility of the Board of Executive Officers, which follows the orientations of the Board of Directors and has the support of certain Management Committees in its decision making. The Company has a permanently installed Fiscal Council. During the year, Renner continued to observe the most advanced practices of Corporate Governance. Among these, it implemented a series of improvements to its Manual for Participation in Shareholder Meetings, a document aligned with international practices for proxy voting. Principal Corporate Governance Practices Novo Mercado 100% free float Majority of the Board of Directors are independent (86%) Board Administration and Management Committees Different executives as Chairman of the Board and CEO Manual for Participation in Shareholders Meetings Stock Options and Restricted Stock Plan Internal Board and Committee charters Formal appraisal of Board of Directors and Executive Officer Board and Committee Secretaries Board of Directors and Committees Portal Whistle blowing channel Adherence to the Abrasca Self-Regulatory Code Anti-corruption, Related Parties and Governance, Risk and Conformity policies Additionally, the Company expanded the scope of the Compliance area which had hitherto covered financial compliance issues only with an operating focus. As from 2017, jointly with the Internal Audit and Prevention and Losses area, Corporate Compliance will adopt a more strategic coverage to meet the requirements of all Lojas Renner s subsidiaries. In 2016, Lojas Renner was selected once more as a component of BM&FBOVESPA s Corporate Sustainability Stock Index (ISE), being the only fashion retailer in the portfolio. During the year, Lojas Renner was acknowledged in the Dow Jones Sustainability Indices (DJSI/RobecoSAM) and was also recognized by the MSCI Global Sustainability Indexes. Again during the year, Lojas Renner was placed in several of Institutional Investor Magazine s corporate rankings. During the year, Renner s equities trading on the BM&FBOVESPA under the LREN3 symbol registered an appreciation of 38.1% (1,950.4% since July 2005, adjusted according to corporate events) in line with the appreciation in Ibovespa s theoretical portfolio of 38.9%. In 2016, 2.9 million transactions were conducted, trading million shares and representing a daily average volume of R$ 74.9 million. 6

7 In 2016, R$ million in the form of Interest on Capital was credited to shareholders, to be complemented by a further R$ 76.8 million in proposed dividends. If approved by the Annual General Meeting of 2017, total remuneration in 2016 will amount to R$ million, equivalent to a dividend yield of 1.7% (considering the closing share price on December 29, 2016) and a payout of 40%. In December 2016, the Board of Directors approved the closing of the first Share Buyback Program with the acquisition of a total of one million common shares at an average price of R$ 19.01, the relative shares being held as treasury stock in order to facilitate the Company s Restricted Stock Plan. On the same date, a further Share Buyback Program was approved for up to a further one million of the Company s common shares with a term of up to 18 months with no reduction in capital stock. The respective shares are to be held as treasury stock and subsequently used to meet the requirements in future fiscal years under the Company s Restricted Stock Plan, these shares also being subject to eventual cancellation or sale. OPERATIONAL PERFORMANCE The store expansion plan continued to be implemented as scheduled, the year ending with a total of 444 stores, being 300 Renner, 85 Camicado and 59 Youcom. The year was characterized by prudent management over the short-term, albeit attentive to long-term opportunities. The key structural projects, which will guarantee the competitiveness of the business in the future will continue to be developed, notably with respect to: NEW LOGISTICS: In March, Renner concluded the construction of the new logistics structure. This involved the entry into operation of the new Distribution Center (DC) in the state of Santa Catarina. As a result, the DC in São José, (SC) and the Santa Cruz DC in the state of Rio de Janeiro, jointly form a new logistics structure which will continue to enjoy the support of the São Bernardo do Campo, (SP) DC. These operations will be instrumental in ensuring the distribution of products to the stores in a more assertive manner with the allocation of items using the push pull system, a method whereby the stores receive inventory according to the demands of each market. Under the new store supply model, the number of cases of product stock out at certain units is reduced as well as decreasing the need for markdowns and transfers between stores. EXPANSION OF THE STORE NETWORK: In May, the Company announced its revised target for Renner store openings in Brazil from 408 to 450 units - to be operational by The revised target also took into account the opportunities which have arisen out of a less favorable economic scenario and the movement towards market consolidation, permitting negotiation of points of sale at more attractive costs. ENTRY TO THE URUGUAYAN MARKET: The Company believes there is scope for Renner to grow in other markets and with this in mind, has announced the rollout of operations in Montevideo, Uruguay as from the second half of Justification for the interest in Uruguay reflects principally its high per capita GDP and the similarities with the south of Brazil where Renner s corporate headquarters and one of the company distribution centers are located. The stores will have the same customer focus as Brazil, namely women in the middle/high income brackets. UPGRADING OF SYSTEMS: In August, the Company concluded the upgrading of the ERPs - all commercial management and back office systems. This was a particularly significant process, the new technological platform bringing a series of benefits in the form of improved commercial and store management. The platform also permits the introduction of additional functionalities which will increase the efficiency of the operation as well as providing a better shopping experience for customers. This was a fundamental step in the Company s strategy for growth and competitiveness, the system bringing other advantages such as the ability to handle a larger number of stores, overseas operations and to offer new services with greater flexibility for e-commerce business. The system will also enable the use of new multi-channel technologies as well as the more accurate management of inventory. EXPANSION OF THE COMPANY S HEAD OFFICE: In October, Renner unveiled a new administrative building with structures which are more appropriate to the optimization of activities involving design, procurement, planning and commercial aspects thanks to greater 7

8 synergy between areas - now physically organized at a single location. This new space also incorporated the structure of the Shared Services Center, previously operating from different physical spaces. SHARED SERVICES CENTER (CSC): The CSC, with 70% of the planned scope under its operations, has advanced in the consolidation and standardization of the support activities, resulting in greater efficiency and improved internal controls. The principal objective of this project is to leave the business areas free to dedicate a greater focus on operating activities while at the same time increasing the efficiency of the support processes, generating economies of scale with a corresponding reduction in expenses. REACTIVITY PROJECT: This project, still in progress, aims at fine tuning the collections and further enhancing Renner s agility by reducing the time between the identification of a new fashion trend and the delivery of the product to the stores for sale. Henceforth, the challenge will be to increase the scale of the rapid response items which will in future reduce uncertainties and increase the predictability of demand and give a better understanding of the constant changes in consumer behavior. Again with respect to 2016, it is worth pointing out the efforts invested in the daily running of the business for maintaining the profitability of the operations through stabilizing levels of productivity and rigid budgetary discipline. At Renner, sales per m 2 during the year were R$ 10.3 thousand, slightly less than the R$ 10.8 thousand reported in During this same period, if the renewed charging of social taxes to payroll is ignored, operating expenses on a same store basis would have grown just 0.8%. Despite all the challenges during the year, the Company was able to post an EBITDA margin of 23.4%. During the period, there was a relative decline in consumer traffic although the average ticket was 4.7% greater at R$ OTHER BUSINESSES CAMICADO Acquired in May 2011, Camicado is the largest national retailer of houseware and home decor products. A further 17 Camicado stores were opened in 2016, making a total of 85 units in Brazil with an average selling area of 450m 2, and a total selling area of 37.5 thousand m 2. The network was expanded in the Northeast while the first Camicado store in the North was inaugurated during the year. The business posted Net Revenues of R$ million in 2016, equivalent to a year-on-year growth of 18.2%. In turn, Gross Margin was 52.8%, a 6.2p.p. increase over From the operating aspect, Camicado continued to ramp up its productivity, sales per m 2 reaching R$ 10.5 thousand. In 2016, a bigger and more modern DC was opened to meet the pace of expansion. Worthy of mention, are the initiatives implemented at Camicado s stores for improving the shopping experience with the modernization of 4 units. With a new stores project and visual merchandising together with improvements in product mix and a larger number of own-branded items, Camicado s sales grew consistently, demonstrating a high degree of resilience in the face of the current economic environment. YOUCOM Launched in 2013, Youcom has a chain of 59 stores with an average selling area of 150 m 2 and a total selling area of 8.7 thousand m 2. Youcom seeks to cater for the middle class youth market between the ages of 18 and 35. The stores use a specialized format with a differentiated ambience, offering quality products at competitive prices and with strong fashion appeal. With the potential for 300 stores nationwide, Youcom has the possibility of diversifying into a wholesale operation through multi-brand retailing and potentially, on a franchise basis as well. The business model has a high degree of capillarity with great potential for smaller markets. In 2016, Youcom posted Net Revenue of R$ 82.0 million and a Gross Margin of 59.6%. Sales per m 2 for 2016 were R$ 11.1 thousand compared with R$ 10.3 thousand in In 2016, with the consolidation of the brand name, Youcom was able to develop its e- commerce channel business further, this reporting significant growth during the year. E-COMMERCE Lojas Renner s e-commerce operations have been following the rapid growth for this segment overall in Brazil. In recent years, continual investments have been made in this channel. More specifically, in 2016 the platforms of the three Renner, Camicado and Youcom brands were improved. At Renner, it is worth mentioning the initiatives involving the new layout with easier browsing, new functionalities and the launch of several lookbooks as well as a new application which was launched in November During the year, the first brand of the Company to be sold exclusively online, Ashua Plus & Curve Size, was launched through the channel. 8

9 FINANCIAL PRODUCTS Financial products and services are offered to customers at Renner stores through partnerships with financial institutions. Such products and services constitute instruments for convenience and enhancing loyalty - always being aligned to the Company s value proposition which is to be the store that stands by the modern woman. While not core to Lojas Renner s operations, financial products are important tools supporting the retail business as well as making an additional contribution to corporate profits. Two types of credit card for installment payment and financing are offered to Renner s customers: the Renner Card (Private Label) and the Co-branded Card with the Mastercard and Visa flags and known as Meu Cartão. Both offer options either in the form of up to five interest-free monthly installments or eight fixed monthly payments with interest. The Saque Rapido (Quick Withdrawal facility) is offered to eligible customers and used in accordance with the specific needs of each customer. This product is not linked to the sale of merchandise but is an important tool for enhancing convenience and loyalty. Average loan value is about R$ with an average term of 8 months for repayment. In addition, we offer our customers home repairs services and insurance (personal, credit card loss and theft, unemployment and guaranteed purchases). These products are offered in partnership with the insurer and home repairs operation. We always endeavor to maintain the portfolio of products on offer in alignment to the Company s value proposition, adjusting the products to customer needs and demands as well as developing alternative distribution channels. Lojas Renner s receivable portfolio in December 2016 amounted to R$ 2,209.3 million and was distributed as follows: Renner Card (Private Label) amounting to R$ 1,138.6 million, Cobranded Meu Cartão credit card of R$ million, Saque Rapido of R$ million and Third Party Cards and other Accounts of R$ million. Accounts Receivable 20.6% On November 3, 2016 in Official Letter /2016 BCB/Deorf/GTPAL, the Brazilian Central Bank authorized the constitution of Realize Crédito, Financiamento e Investimento S.A. ( Realize ), approving the necessary actions required for its incorporation. Realize will be 100% controlled directly or indirectly by Lojas Renner and will comply with all the applicable legal requirements. It will also introduce a greater degree of flexibility, agility and transparency in the management of financial products on offer and which support the Company s core retailing business. 5.0% Dec % Private Label Quick Withdrawal 51.5% Co-branded Others 9

10 ECONOMIC AND FINANCIAL PERFORMANCE The following financial and operational information, except where otherwise stated, is in accordance with the international financial reporting standards ( IFRS ), issued by the International Accounting Standards Board (IASB), and accounting practices adopted in Brazil ( BRGAAP ), including the pronouncements published by the Accounting Pronouncements Committee (CPC). Information (R$ MM) Var. % Net Revenue from Merchandise Sales 5, , % Growth in Same Store Sales (%) -0.2% 10.8% - Gross Profit from Merchandise Sales 3, , % Gross Margin from Retailing Operation (%) 55.7% 54.8% 0.9p.p. Operating Expenses (SG&A) (2,068.6) (1,859.1) 11.3% SG&A as a % of Net Revenue from Merchandise Sales (%) 36.2% 34.1% 2.1p.p. Ajusted EBITDA from Retailing Operation 1, , % Ajusted EBITDA Margin from Retailing Operation (%) 19.0% 19.1% -0.1p.p. Financial Products Result % Ajusted Total EBITDA (Retail + Financial Products) 1, , % Ajusted Total EBITDA Margin (%) 23.4% 22.9% 0.5p.p. Net Income % Net Margin (%) 10.9% 10.6% 0.3p.p. ROIC (%) 21.4% 22.0% -0.6p.p. Businesses Breakdown Stores in Operation Selling Area (thousand m²) Net Revenue (R$ MM) % of Growth 3.5% 18.2% 96.5% Gross Margin (%) 55.8% 52.8% 59.6% Net Revenue from Merchandise Sales In spite of the high comparative base, Net Revenue from Merchandise Sales posted a growth of 5.0% in 2016 with Same Store Sales practically stable at -0.2%. During the year, internal and non-recurring questions affected performance, some of these due to Company growth strategy and competitiveness. In the early months of the year, there was lower availability of light summer items, postponement of arrival of imported goods and a more rigorous quality control. In addition, specific issues with respect to two brands of female apparel arose resulting in a lower than expected performance. The conclusion of the upgrading of the ERPs in August also led to an inventory imbalance at store level, albeit a foreseeable effect of such implementation. Sales were also influenced by the economic environment, reflected in reduced customer traffic through the shopping malls. Atypical temperatures during certain periods of the year also affected sales. Conversely, the Camicado and Youcom operations showed an impressive resilience in the face of the economic cycle and continued to make positive contributions, reporting sales growth of 18.2% and 96.5%, respectively. Thus, despite all the challenges of 2016, Lojas Renner continued to turn in a superior performance to the 6.2% decline reported for the sector as a whole as revealed in the Federal Government Statistics Office s (IBGE) data for the Monthly Retailing Survey Index to November

11 Cost of Goods Sold and Gross Profit from the Retailing Operation The Cost of Goods Sold (COGS) posted a year-on-year increase of 2.9%, proportionally less than growth in Net Revenue - the result of efforts by the Company to identify alternatives for offsetting increased costs in the production chain and the effects of contracting currency for imported products. These alternatives include better negotiations and support for increased supplier productivity, enhancing the operation s economies of scale, among others. Gross Profit from the Retailing Operation recorded a growth of 6.7% in relation to 2015, equivalent to a margin of 55.7%, and a year-on-year improvement of 0.9p.p.. This increase relates to adjustments in commercial management despite the sector as a whole being dominated by promotional activity during the year. Equally, the better margins reported at Camicado and Youcom of 52.8% and 59.6%, respectively, also contributed to this result. The resumed debit of social taxes to payroll further benefited margins by 0.5p.p.. Operating Expenses Selling Expenses were 27.1% of Net Revenue, an increase of 1.6p.p. when compared with 2015, largely a reflection of resumed charging of social taxes to payroll and the larger number of stores rolled out during the period. General and Administrative Expenses were 9.1% of Net Revenue. This was an increase in relation to 2015, also due to the resumed debit of social taxes to payroll and expenditure on the new Santa Catarina DC which was still not fully operational in Operating Expenses (SG&A) increased by 11.3%, or 6.3%, if the effects of the resumed debiting of social taxes to payroll are discounted. This result reflects the rigid budgetary control exercised by the Company for adjusting operating expenses to the slower pace of sales and to offset additional pressures with respect to changes in tax treatment. On a same store basis, excluding the deduction of social taxes from payroll, Renner operating expenses would have been largely steady at 0.8%. Profit Sharing Program (PPR) expenses in the fiscal year amounted to R$ 47.3 million while Statutory Participations totaled R$ 6.7 million. These expenses are booked to the Other Operating Results line, and were positively impacted by R$ 71.4 million, mainly arising from the identification of tax credits following a fiscal review process. Adjusted EBITDA from the Retailing Operation Despite the slower pace of sales and increased expenses, Adjusted EBITDA from the Retailing Operation was 4.7% greater than 2015 (7.5% if resumed debiting of social taxes to payroll is excluded). The Adjusted EBITDA Margin from the Retailing Operation held steady at 19.0% and if resumed debiting of social taxes to payroll is excluded, would have grown by 0.7p.p.. 11

12 Financial Products Result Financial Products Result Breakdown (R$ MM) Var. % Revenues, Net of Funding and Taxes % Renner Card (Private Label) % Co-branded Card Meu Cartão % Quick Withdrawal and Insurances % Credit Losses, Net of Recoveries (262.2) (281.1) -6.7% Renner Card (Private Label) (126.2) (164.7) -23.4% Co-branded Card Meu Cartão (103.6) (76.7) 35.0% Quick Withdrawal (32.4) (39.7) -18.3% Operating Expenses (Cards and Other Products) (177.9) (159.6) 11.4% Financial Products Result % % of Company's Total Adjusted EBITDA 18.8% 16.7% 2.1p.p. In 2016, the Financial Products Result reported year-on-year growth of 20.6%, contributing 18.8% to Total Company EBITDA and reflecting improved revenue and a lower level of losses from the Renner Card. This performance reflected the important improvement in the level of credit losses, the result of initiatives implemented in the granting of credit, credit limit updates and collection strategy. Revenue, Net of Funding and Taxes was 6.5% higher than the same period in the preceding year, driven principally by the Co-branded Meu Cartão. Revenue from the Private Label business was slightly less due to the incidence of new PIS/COFINS taxes on financial revenue as from July These revenues were also squeezed by the reduction in the average receivables term and by the decline in the participation of the 0+8 installments with interest credit plan, largely reflecting tendencies in customer behavior. Credit Losses, Net of Recoveries reported a decrease of 6.7% in relation to 2015, principally resulting from the measures and strategies adopted in recent years for improving the granting of new credit, credit limit updates as well as greater efficiency in collections. Losses from the Renner Card, Net of Recoveries over the portfolio fell 3.0p.p. while the Saque Rápido product remained almost stable at 22.4% despite the reduction in the size of this portfolio. Conversely, in the case of Meu Cartão, this ratio was 19.6% against 16.9% in 2015, above all due to lower growth in the portfolio and a slight increase in loss levels due to the nature of the product, which is more sensitive to the macro environment. Operating expenses rose by 11.4% year-on-year, again essentially due to the resumption of debiting of social taxes to payroll and to new projects such as the incorporation of the Financial Institution and the new Financial Products platform. 12

13 At year-end 2016, a total of 27.4 million Renner Cards had been issued and accounting for 48.2% of all merchandise sales. During the year, the interest free credit plan accounted for 39.5% of total sales while the alternate interest-bearing 0+8 installment plan was responsible for a further 8.7%. The average Renner Card sales ticket in 2016 was R$ while the average ticket for the Company was R$ compared with R$ and R$ , respectively, in Payment Conditions (%) 26.3% 26.5% 39.5% % 8.7% 24.7% % 39.1% Renner Card 0+5 and Co-Branded Renner Card 0+8 Third Party Cards Cash Total Adjusted EBITDA: Retail and Financial Products Total Adjusted EBITDA posted growth of 7.4%, equivalent to a Margin of 23.4%, 0.5p.p. higher than Ignoring the effect of the resumed debit of social charges to payroll, the Margin would have been 24.3%, an increase of 1.4 p.p., the result of the Company s focus on protecting its operating margins and the good results from the Financial Products business. EBITDA Reconciliation (R$ MM) Net Income ( + )Income and Social Contribution Taxes ( + )Financial Result, Net ( + )Depreciation and Amortization Total EBITDA 1, ,198.0 ( + ) Stock Option Plan ( + ) Statutory Participation ( + ) Result on Disposal or Write-Off of Fixed Assets Total Adjusted EBITDA* 1, ,247.2 Total Adjusted EBITDA Margin* 23.4% 22.9% *Pursuant to Article 4 of CVM instruction 527, the Company has chosen to show its Adjusted EBITDA as in the above table in order to provide the information that best reflects the gross operational cash generation in its activities. These adjustments are based on: a) the Stock Option Plan corresponding to the fair value of the respective financial instruments recorded pro rata temporis, during the period services are rendered and offset by the Equity Capital Reserve and thus not representing a cash outflow; b) Statutory Participations are of a contingent nature and are related to the generation of profits pursuant to Article 187 of Law 6.404/76; and c) the Write-off of Fixed Assets relates to the results recorded from the divestment or write-off of fixed assets, largely without a cash impact. Free Cash Flow Cash Flow (R$ MM) Var. Total Adjusted EBITDA 1, , (+/-) Income and Social Contribution Taxes/Others (165.9) (225.0) 59.1 Operating Cash Flow 1, , (+/-) Changes in Working Capital (176.3) (149.0) (27.3) Accounts Receivable, Net of Operating Financing (90.3) (164.4) 74.1 Inventories (159.7) (10.2) (149.5) In 2016, the Company generated a Free Cash Flow of R$ million, an increase of 72.2% and a positive variation of R$ million compared with This result is due largely to better operating results and reduced cash allocations to fixed assets. Suppliers (8.0) Other Accounts Receivable/Payable (52.6) 33.6 (86.2) (-) Capex (477.2) (571.3) 94.1 (=) Free Cash Flow

14 Net Financial Result In 2016, the negative Net Financial Result was R$ million, a slight improvement on the negative figure of R$ million in 2015 and a reflection of a higher cash position and, to a lesser degree, reduced debt servicing due to lower leverage. Debt/Net Cash and Cash Equivalents Net Debt (R$ MM) Dec.16 Dec.15 Borrowings and Financing (1,008.3) (1,057.1) Current (615.4) (317.3) Noncurrent (392.9) (739.8) Operational Financing (795.6) (796.5) Current (378.3) (380.9) Noncurrent (417.4) (415.6) Cash and Cash Equivalents Net Debt (909.0) (1,116.1) Net Debt / Total Adjusted EBITDA (12M) 0.68x 0.89x Company Net Debt on December 31, 2016 was R$ million, 18.6% lower than recorded on December 31, 2015, due principally to improved cash generation. This debt reflects capital management decisions taken by the Company and is currently made up of debentures, loans from the Brazilian Development Bank - BNDES and Banco do Nordeste and in the form of working capital lines, debt is a reflection of capital management decisions. Operational finance lines are used for financing the Financial Product portfolios and variation in the amounts of this portfolio are proportional to fluctuations in the financed volume of these products. Debt servicing charges are booked to the Net Financial Result. Conversely, the costs of Operational Financing - a reflection of the volume of Financed Products - are incorporated in the Operating Results. Net Income The Company reported a 2016 Net Income of R$ million, an 8.0% increase compared with 2015, a consequence of the factors mentioned above. Net Margin was 10.9% (or 11.5% if the resumption of social tax debits to payroll are excluded) versus 10.6% for the preceding year. INVESTMENTS CAPEX Summary (R$ MM) New Stores Remodeling of Installations IT Equipament & Systems Distribution Centers Others Total

15 In line with its long-term plan, Lojas Renner invested a total of R$ million in key projects, including the opening of 64 new stores, namely 25 in the Renner format and 17 Camicado and 22 Youcom units. Further investments were made in store modernization (8 Renner, 4 Camicado and 2 Youcom) as well as the upgrading of the Company s ERPs (commercial management and back office systems). RELATIONSHIP WITH THE EXTERNAL AUDITORS Renner's policy in relation to its independent auditors, with respect to the provision of services not related to the external audit rests on principles that preserve the auditor s independence. These principles are based on the fact that the auditors should not audit their own work, perform management functions or represent their client. During the fiscal year ending December 31, 2016, the Company s independent auditors, KPMG Auditores Independentes, were not engaged for additional services other than the review of the financial statements and external assurance of the Annual Report. OUTLOOK The year 2017 will be another challenging one. To meet these challenges, Lojas Renner will continue to seek opportunities for positioning itself in a market which is continually consolidating, competitive and with a high degree of informality. This will demand austere management and an attentiveness to the near horizon but also a keen focus on long-term strategy as well. Irrespective of the macro-economic scenario, the Company will continue to pursue excellence in order to improve its operations, products and services in order to become increasingly more competitive and resilient. Consequently, in 2017, Lojas Renner will continue to invest in the construction of structural projects that will ensure the competitiveness and the profitability of the business, at the same time strengthening the visibility of the brand with its different stakeholders. As proposed to the shareholders, investments will amount to R$ million and covering the rollout of between 20 and 25 Renner stores (including those planned for Uruguay), 15 Camicado and 25 Youcom stores, in addition to the modernization of existing units. ACKNOWLEDGEMENT The Company would like to thank all its shareholders, employees, customers, suppliers and employees for their engagement, support, effort and dedication during Porto Alegre, February 08,

16 Balance Sheets As of December 31, 2016 and 2015 (In thousands of Brazilian reais - R$) Explanatory Parent Company Assets Notes 12/31/ /31/ /31/ /31/2015 Current Cash and cash equivalents 8 711, , , ,527 Accounts receivable 9 1,032, ,990 2,209,271 2,119,836 Inventories , , , ,534 Taxes recoverable ,386 71, ,841 87,630 Derivative financial instruments , ,469 Other accounts receivable 29,316 27,682 56,654 48,879 Prepaid expenses 7,680 6,582 6,198 5,336 Total current assets 2,558,698 2,325,003 4,085,477 3,721,211 Non-current Long - term assets Judicial deposits ,383 10,782 10,444 10,825 Taxes recoverable 12 46,857 47,402 66,624 59,108 Related parties ,158 1, Derivative financial instruments Prepaid expenses 2,631 4, Other accounts receivable 9,931 8,563 10,692 8,563 Deferred taxes ,516 73, ,616 97,899 FIDC Lojas Renner , , Total long - term assets 380, , , ,446 Investments , , Fixed assets ,503,703 1,444,336 1,645,069 1,544,202 Intangible , , , ,797 Total non-current assets 2,711,295 2,474,676 2,389,735 2,142,508 TOTAL ASSETS 5,269,993 4,799,679 6,475,212 5,863,719 The explanatory notes of the Administration are an integral part of these financial statements. 16

17 Balance Sheets As of December 31, 2016 and 2015 (In thousands of Brazilian reais - R$) Explanatory Parent Company Liabilities and Equity Notes 12/31/ /31/ /31/ /31/2015 Current Borrowings, financing and debentures , , , ,346 Financing - financial services operations 19 65,489 72, , ,914 Finance lease payable ,521 8,329 2,521 8,329 Suppliers , , , ,453 Taxes and contributions payable , , , ,976 Accrued salaries and social charges 161, , , ,704 Rentals payable 21 47,973 45,388 55,608 51,152 Statutory obligations 156, , , ,858 Provision for civil and labor risks ,665 29,417 33,656 29,866 Obrigations with credit card administrators 6,110 25, , ,086 Derivative financial instruments ,861 1,950 57,530 2,601 Other obligations 26 60,303 75,714 62,265 68,842 Total current liabilities 2,132,012 1,668,861 2,917,751 2,319,127 Non-current Borrowings, financing and debentures , , , ,769 Financing - financial services operations , ,551 Finance lease payable ,497 41,103 69,497 41,103 Taxes and contributions payable Provision for tax risks ,538 33,688 37,356 34,848 Related parties , Other accounts payable 26 3,214-3,508 2,256 Total non-current liabilities 501, , ,665 1,233,696 Total liabilities 2,633,197 2,488,783 3,838,416 3,552,823 Equity Capital ,178,368 1,136,124 1,178,368 1,136,124 Treasury stocks 28.2 (19,021) (6,016) (19,021) (6,016) Capital reserves , , , ,291 Profit reserves ,216, ,271 1,216, ,271 Equity value adjustments (37,825) 64,226 (37,825) 64,226 Total equity 2,636,796 2,310,896 2,636,796 2,310,896 TOTAL LIABILITIES AND EQUITY 5,269,993 4,799,679 6,475,212 5,863,719 The explanatory notes of the Administration are an integral part of these financial statements. 17

18 Income Statement For the years ended December 31, 2016 and 2015 (In thousands of Brazilian reais - R$, except earnings per share) Explanatory Notes Parent Company Net operating revenues 5,740,127 5,579,873 6,451,578 6,145,198 Sales of goods 34 5,291,351 5,114,379 5,721,757 5,450,852 Financial products and services , , , ,346 Cost of sales and services (2,383,065) (2,341,363) (2,575,083) (2,511,352) Cost of goods sold (2,344,612) (2,296,191) (2,536,630) (2,466,180) Cost of financial products and services (38,453) (45,172) (38,453) (45,172) Gross profit 3,357,062 3,238,510 3,876,495 3,633,846 Operating expenses Selling 35 (1,383,609) (1,274,929) (1,547,462) (1,389,728) General and administrative 35 (472,768) (434,059) (521,149) (469,389) Losses on receivables, net (158,636) (204,424) (262,203) (281,141) Other operating results 36 (445,771) (459,942) (569,991) (560,335) Equity in the results of subsidiaries ,937 46, Total operating expenses, net (2,407,847) (2,326,528) (2,900,805) (2,700,593) Operating profit before financial results , , ,253 Financial revenue 37 77,277 82,530 87,472 93,853 Financial expense 37 (180,917) (188,099) (190,782) (198,439) Total financial result, net (103,640) (105,569) (103,310) (104,586) Profit before income tax and social contribution , , ,667 Current 13.4 (222,049) (246,208) (253,651) (275,069) Deferred ,532 18,633 6,329 25,240 Total of Income tax and social contribution taxes (220,517) (227,575) (247,322) (249,829) Profit for the year 625, , , ,838 Basic earnings per share - R$ 30 0,9742 0,9066 0,9742 0,9066 Diluted earnings per share - R$ 30 0,9661 0,9038 0,9661 0,9038 Number of shares outstanding at end of year (in thousands) 643, , , ,041 The explanatory notes of the Administration are an integral part of these financial statements. 18