FOX-WIZEL LTD. BOARD OF DIRECTORS' REPORT AS OF SEPTEMBER 30, 2016

FOX-WIZEL LTD. BOARD OF DIRECTORS' REPORT AS OF SEPTEMBER 30, 2016 Hermon St. Airport-City P.O.B. 76; Ben-Gurion Airport 70100 Tel.: 03-9050100 Fax: 03-9050200

FOX-WIZEL LTD. We are hereby pleased present the report of the Board of Direcrs of Fox-Wizel Ltd. ("the Company") and its local and foreign subsidiaries (collectively, "the Group") for the nine months ended September 30, 2016 ("the reporting period"), in conformity with the Israeli Securities Regulations (Periodic and Immediate Reports), 1970. The attached financial statements have been prepared in conformity with International Financial Reporting Standards ("IFRS"). See additional information in Note 2 the Company's annual financial statements as of December 31, 2015. The Company did not include separate financial information in the financial statements as of September 30, 2016 after it had examined and found that the additional information that would be provided the invesr in the separate financial statements the information included in the consolidated financial statements of the Company is not significant. A. THE BOARD OF DIRECTORS' EXPLANATIONS FOR THE STATE OF THE COMPANY'S AFFAIRS 1. Condensed description of the Company and its business environment General The Group is engaged in the design, acquisition, marketing and distribution of clothes, fashion accessories, underclothing, footwear and home products. The Company also sells aromatic bath and body care products. The Company is active in two main operating segments: 1. Fashion and home fashion under the brands FOX - in Israel and abroad - FOX Home, American Eagle Outfitters, Aerie, The Children's Place, Charles & Keith and Mango in Israel. 2. Aromatic bath and body care products through the Laline brand in Israel and abroad. See more information below. - 2 -

1.1 The segment of fashion and home fashion This operating segment is marketed through several marketing channels as follows: Local sales - through the Israeli retail chain - a chain of sres operated by the Company itself and/or through subcontracted operars ("directly operated sales" and/or "directly operated sres") and wholesales institutional sres and entities in Israel ("sales wholesalers and others in Israel"). Foreign sales - sales franchises and wholesalers abroad ("foreign franchise sales"). Local sales The FOX brand The Group's major activities in the Israeli fashion industry are performed under the FOX brand. The Company also sells housewares and home textile products in the FOX Home retail chain. The FOX and FOX Home brands are some of Israel's leading fashion and home fashion brand. The Company's brands have maintained their p position by following current trends, practicing innovation and developing a variety of models while maintaining product quality, using structured marketing and positioning strategies and operating an advanced logistic system. The American Eagle and Aerie brands ("AE") The AE retail chain launched its Israeli operations on February 2, 2012. American Eagle Outfitters is a well-known and leading clothing, apparel and footwear brand in the United States which sells casual fashionable clothing at affordable prices. The Aerie underwear brand is generally sold in a sre-in-sre format or in side-by-side format. There are also five stand-alone sres of the Aerie brand. The Company began collaborating with American Eagle Outfitters in the U.S. for launching a limited children's collection for boys and girls sizes 4-16 that will be exclusively sold in Israel. The collection was launched on March 1, 2016 with the brand's spring collection in 18 selected sres nationwide in a sre-in-sre concept. The children's collection was designed in the spirit of the AE brand and in keeping with the brand's signature designs. The Children's Place brand ("TCP") The TCP retail chain launched its Israeli operations on March 7, 2014. The TCP brand is the largest children's wear brand in the U.S. which offers a wide collection of clothing items designed for boys and girls, from casual trendy. The chain sells clothing items, accessories and footwear for babies from New Born size 14 at high quality and affordable prices. - 3 -

The Mango brand ("Mango") The Mango retail chain started its operations under FOX Group control on January 5, 2015. The Mango brand is a leading multinational European fashion brand which offers trendy apparel, footwear and accessories for women, men and kids at premium quality and competitive prices. The Charles & Keith brand ("C&K") The C&K retail chain launched its Israeli operations in February 2015. The C&K brand is a leading international fashion brand from Singapore which offers a variety of trendy footwear, bags and accessories for women at premium quality and affordable prices. The brand offers tal look fast fashion collections of shoes, bags and fashion accessories. As of September 30, 2016, the Company's directly operated retail chain includes 314 sres as described below 30.09.2015 31.12.2015 31.03.2016 30.06.2016 30.09.2016 FOX sres * 181 181 179 179 180 AE sres ** 41 41 41 41 41 TCP sres 32 34 35 37 38 C&K sres 15 15 16 16 17 Mango sres 34 37 38 41 40 Total 303 308 309 314 316 * FOX Home - since the second half of 2010, the Company operates the FOX Home retail chain. As of September 30, 2016, the chain has 43 sres (and 21 additional mixed sres that sell clothing items along with houseware and textile products). ** AE - as of September 30, 2016 there are 41 chain sres in leading shopping malls in Israel, of which five stand-alone Aerie sres. Foreign sales The Company operates abroad and plans expand the deployment of its fashion retail chain under the FOX and/or F&X brand other international markets in collaboration with exclusive franchisees in each country. The foreign sres are established by the franchisees that bear the entire costs of construction, including the logistics and advertising costs. As of September 30, 2016, 122 sres/points of sale operate under the F&X and FOX brands in 12 countries around the globe. - 4 -

1.2 The segment of aromatic bath and body care products The Laline sre chain sells soaps, candles, oils, bath products, body care products, baby care products, accessories and gifts. Laline markets its products mainly through the retail chain in Israel. In addition, Laline markets its products institutional cusmers in Israel. Laline operates overseas in 27 franchise sres operating the name of Laline in Japan, the U.S. (California and Hawaii)) and the Caribbean's. Laline plans expand the deployment of its sres in other international markets through designated franchisees in each country. On Ocber 27, 2015, Laline US Holdings Inc. was founded ("Laline Inc.") which sells lotions, aromatic products, soaps, accessories etc. in a one directly-operated sre in the U.S. (Manhattan, NYC). Laline owns 100 the authorized share capital of Laline Inc. 30.09.2015 31.12.2015 31.03.2016 30.06.2016 30.09.2016 Laline retail chain in Israel 102 103 102 102 104 1.3 Other activities that do not constitute a reportable segment A.H. Fashion Manufacture and Marketing 3020 Ltd. ("Sacks") - the Company holds 50 the share capital of Sacks. Sacks manufactures and markets women's fashion products under the Sacks brand local and foreign wholesalers and operates boutique sres in Israel that offer trendy and luxurious designs for women. As of the reporting date, Sacks operates 19 sres in Israel and markets its products abroad wholesalers in the Netherlands, Switzerland, England, Greece, Germany, Austria, France, Australia, Argentina, Singapore, Spain, Croatia, Madagascar, Japan and Canada. In addition, since the fourth quarter of 2015, Sacks operates a website for marketing its brand worldwide. Billy Haus Ltd. ("Billy Haus") - the Company holds 50 the share capital of Billy Haus which imports and sells youth surfing and extreme sports apparel and accessories. Its main brands include VZ, Billabong and Element. Billy Haus markets the products through a retail chain that, as of the reporting date, consists of 36 sres in leading shopping malls in Israel. Until March 2016, Billy Haus held 66.7 the share capital of Marcha Ballerina Ltd. ("Marcha"). Since December 2012, Marcha operates a chain of stands that sell "Paris style" quality, fashionable, chic, reasonably priced shoes. On January 14, 2016, Billy Haus signed an agreement according which it sold its entire interests in Marcha Mrs. Sari Assaf Melamud in consideration of NIS 2.3 million. The shares were transferred on March 1, 2016 after the payment had been delivered Billy Haus. - 5 -

Yanga Ltd. ("Yanga") - since August 28, 2014, the Company holds 50 the share capital of Yanga. Yanga is engaged in the acquisition, production and marketing of vintage-romantic style boutique fashion for women under the Yanga brand retailers in Israel. As of the reporting date, Yanga operates 18 sres in leading shopping malls across Israel. Retailors Ltd. ("Retailors") - since March 1, 2015, the Company holds 90 the share capital of Retailors. Retailors is one of Nike's franchisees in Israel that markets and sells Nike's sports shoes, apparel and accessories. As of the reporting date, Retailors operates 19 sres in Israel. 1.4 Material events during the reporting period 1.4.1 On February 1, 2016, the Company reported that in the context of preparing the annual financial statements of Laline for 2015, management found inaccuracies in the records of Laline's accounts from 2009 until the third quarter of 2015 which had an effect on the Company's consolidated financial statements in the item of investments in companies accounted for at equity in the statement of financial position and in the item of the Group's share of earnings of companies accounted for at equity, net in the statement of profit or loss. See more information in Note 2b the Company's interim financial statements as of September 30, 2016. 1.4.2 For details of class actions filed against the Company and investees, see Note 4 and Note 7 the Company's interim financial statements as of September 30, 2016. 1.4.3 Events after the reporting date On Ocber 26, 2016, the subsidiary, Retailors Ltd. ("Retailors"), signed an agreement with Foot Locker Europe BV ("Foot Locker") according which Foot Locker granted Retailors a franchise set up and operate chain sres in Israel that will sell footwear and sports apparel of p international life style brands under the "Foot Locker" brand. The franchise period is ten years from the date of signing. Foot Locker is a wholly owned subsidiary of the US public company Foot Locker Inc. The Company estimates that Retailors will start operate sres under the Foot Locker brand in Israel in the second quarter of 2017. As for additional information regarding the agreement, see immediate report of Ocber 27, 2016 (TASE reference: 2016-01-067947). - 6 -

2. Segment Analysis The table below details the structure of activities of the Company according the presentation in segment and accounting reporting: Revenues from sales and services Gross profit Operating income Segment reporting Accounting reporting Total before Fashion and Aromatic bath Other - adjustments Total home fashion and body care unallocated based on consolidated In Israel 100 activity Abroad 100% of activity 100% of activity 100% of activity 100% of activity Adjustments financial statement FOX, Home, AE, TCP, FOX Laline Billabong, Nike, Subtal - Fashion and Less - 100 sales - Sales - FOX, Home, TCP, C&K, Mango Sacks, Yanga home fashion, aromatic bath AE, Laline, Billabong, C&K, Mango, Nike FOX, Home, AE, TCP, C&K, Mango FOX, Home, AE, TCP, C&K, Mango *) Less excess of cost related acquisition. FOX Laline Billabong, Nike, Sacks, Yanga FOX Laline (*) Operating income - Billabong, Nike, Sacks, Yanga and body care and other Sacks, Yanga Subtal - Fashion and Less - 100 gross home fashion, aromatic bath profit - AE, Laline, and body care and other Billabong, Sacks, Yanga Subtal - Fashion and home fashion, aromatic bath and body care and other Less - 100 operating income (*) - AE, Laline, Billabong, Sacks, Yanga Add 50 equity earnings companies - AE, Laline, Billabong, Sacks, Yanga Gross profit - FOX, Home, TCP, C&K, Mango, Nike Operating income - FOX, Home, TCP, C&K, Mango, Nike Add 50 equity earnings companies - AE, Laline, Billabong, Sacks, Yanga

The Group's business results for the nine months ended September 30, 2016 and 2015 according operating segments (NIS in thousands) In furtherance the application of IFRS 11, the results of the reported companies (Laline, Sacks, Billy Haus, Yanga and FWS) are now accounted for using the equity method. In order present segment reporting results based on the areas of operation of the Company and the information that is reviewed by the chief operating decision maker (the CODM) the data for sales and segment income of companies that are reported using the equity method are presented at full holding rate (100%) and a corresponding adjustment of sales and segment income was made present the segment's results based on the actual holding rate under the 'adjustments' column. Since May 1, 2015, the Company no longer consolidates the activity of AE brands and the results are reported using the equity method (50% holding) in operating income in the item "Company's share of earnings of companies accounted for at equity, net". Yet, in the framework of the segment reporting presented below, the operating results are fully included (100%) in the fashion and home fashion segment in Israel and a corresponding adjustment of sales and segment income was made present the operating results based on the holding rate (50%) under the 'adjustments' column. For the nine months periods 1-9/2016 Fashion and Other - unallocated Total before home fashion Aromatic (Billabong, adjustments Total (FOX, Home, AE, bath and Nike, based on consolidated TCP, C&K, Mango) body care Sacks, 100 the financial Israel Abroad (Laline) Yanga) activity Adjustments statement Revenues from sales and services 1,165,732 20,661 125,662 220,648 1,532,703 (486,707) 1,045,996 Gross profit 672,416 8,672 82,000 130,932 894,020 (309,547) 584,473 Operating income 23,859 6,163 7,548 22,990 60,560 (14,731) 45,829 Profit margin 2.0% 29.8% 6.0% 10.4% 4.4% 1-9/2015 Fashion and Other - unallocated Total before home fashion Aromatic (Billabong, adjustments Total (FOX, Home, AE, bath and Nike, based on consolidated TCP, C&K, Mango) body care Sacks, 100 the financial Israel Abroad (Laline) Yanga) activity Adjustments statement Revenues from sales and services 990,396 29,993 108,821 182,281 1,311,491 (365,888) 945,603 Gross profit 572,653 10,943 70,692 112,692 766,980 (232,898) 534,082 Operating income 12,926 7,707 11,478 23,072 55,183 (20,382) 34,801 Profit margin 1.3% 25.7% 10.5% 12.7% 3.7%

For the three months periods 7-9/2016 Fashion and Other - unallocated Total before home fashion Aromatic (Billabong, adjustments Total (FOX, Home, AE, bath and Nike, based on consolidated TCP, C&K, Mango) body care Sacks, 100 the financial Israel Abroad (Laline) Yanga) activity Adjustments statement Revenues from sales and services 397,271 6,857 45,524 80,057 529,709 (164,653) 365,056 Gross profit 229,040 2,758 28,711 46,536 307,045 (104,128) 202,917 Operating income 8,152 1,858 2,653 9,450 22,113 (6,653) 15,460 Profit margin 2.1% 27.1% 5.8% 11.8% 4.2% 7-9/2015 Fashion and Other - unallocated Total before home fashion Aromatic (Billabong, adjustments Total (FOX, Home, AE, bath and Nike, based on consolidated TCP, C&K, Mango) body care Sacks, 100 the financial Israel Abroad (Laline) Yanga) activity Adjustments statement Revenues from sales and services 348,629 9,203 37,901 71,082 466,815 (162,091) 304,724 Gross profit 198,113 3,411 23,739 42,670 267,933 (100,433) 167,500 Operating income (4,802) 2,573 3,394 9,366 10,531 (7,349) 3,182 Profit margin -1.4% 28.0% 9.0% 13.2% 1.0% The table below details fixed and variable costs in each of the Company's operating segments in the nine and three months ended September 30, 2016 and 2015: Fashion and home fashion (FOX, Home, AE, TCP, C&K, Mango) Aromatic bath and body care (Laline) 1-9/2016 1-9/2015 1-9/2016 1-9/2015 Revenues from sales and services 1,186,393 1,020,389 125,662 108,821 Gross profit 681,088 583,596 82,000 70,692 Fixed costs 392,457 340,035 52,586 40,194 Variable costs 258,609 222,928 21,866 19,020 Operating income *) 30,022 20,633 7,548 11,478 Fashion and home fashion (FOX, Home, AE, TCP, C&K, Mango) Aromatic bath and body care (Laline) 7-9/2016 7-9/2015 7-9/2016 7-9/2015 Revenues from sales and services 404,128 357,832 45,524 37,901 Gross profit 231,798 201,524 28,711 23,739 Fixed costs 138,125 125,715 18,137 13,806 Variable costs 83,663 78,038 7,921 6,539 Operating income *) 10,010 (2,229) 2,653 3,394 *) After offsetting the Company's share of earnings of companies accounted for at equity, net. - 9 -

Following are details of the change in same sre sales and of the income per sq. m. for each of the Company's operating segments in the nine and three months ended September 30, 2016 and 2015: Same sre sales Fashion and home fashion Aromatic bath and body care 1-9/2016 1-9/2015 1-9/2016 1-9/2015 Total same sre sales (NIS in thousands) *) 715,322 676,040 127,817 112,040 Fashion and home fashion Aromatic bath and body care 7-9/2016 7-9/2015 7-9/2016 7-9/2015 Total same sre sales (NIS in thousands) *) 314,579 301,146 45,116 40,989 Sales per sq. m. (not in same sres) Fashion and home fashion Aromatic bath and body care (Laline) 1-9/2016 1-9/2015 1-9/2016 1-9/2015 Total sales per sq. m. (in NIS) **) 1,143 1,143 2,534 2,337 Total area used in calculating sales per sq. m. (in sq. m.( ***) 110,545 95,046 4,833 4,518 Fashion and home fashion Aromatic bath and body care (Laline) 7-9/2016 7-9/2015 7-9/2016 7-9/2015 Total sales per sq. m. (in NIS) **) 1,136 1,103 2,596 2,297 Total area used in calculating sales per sq. m. (in sq. m.( ***) 112,758 104,006 4,811 4,696 *) Sres used in calculating sales are only sres which operated continuously and regularly throughout the entire relevant period in 2016 and 2015 with no change in area. **) The data of sales per sq. m. are not SS data and are also affected by changes in sre size. The data of sales used in calculating sales per sq. m. included all forms of payment accepted by the sre less VAT and less all discounts and promotions, including the redemption of Citrus Club Card points and discounts vouchers and gift cards. ***) The data of area in sq. m. used in the calculation are in net terms and exclude public areas and warehouses. The calculation of tal area for the period in sq. m. was made relatively according the number of operations of each sre. - 10 -

2.1 The fashion and home fashion segment 2.1.1 The fashion and home fashion segment in Israel Sales For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Rate of change Sales 1,165.7 990.4 17.4% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Rate of change Sales 397.3 348.6 14.0% The increase in sales turnover in the reporting periods the corresponding periods of last year arises from the growth in brand operations including in the new brands, Charles & Keith and Mango, which were launched at the beginning of last year and from the increase in same sres sales in the reporting periods the corresponding periods of last year, Offset by the effect of the Jewish New Year holidays which occurred this year on Ocber 2 whose sales is also reflected in results of the fourth quarter of 2016, the corresponding period of last year when the Jewish New Year holidays occurred on September 13 so the majority of sales were included in the results of the third quarter of 2015. Gross profit For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Gross profit 672.4 57.7% 572.7 57.8% 17.7% -0.1% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Gross profit 229.0 57.6% 198.1 56.8% 15.6% 0.8% The increase in the gross profit margin in the third quarter of the year the corresponding period of last year mainly arises from reducing the extent of the discounts offered cusmers. - 11 -

Operating income For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Operating income 23.9 2.0% 12.9 1.3% 85.3% 0.7% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Operating income 8.2 2.1% (4.8) -1.4% 270.8% 3.5% The increase in the operating income in the first nine months of the year the corresponding period of last year mainly arises from the growth in same sres sales, offset by recording a one-time provision for legal expenses. The increase in the operating income in the third quarter of the year the corresponding period of last year mainly arises from the growth in same sres sales and from the increase in the gross profit margin from sales in this channel, offset by recording a one-time provision for legal expenses. 2.1.2 The fashion segment abroad Sales For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Rate of change Sales 20.7 30.0-31.0% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Rate of change Sales 6.9 9.2-25.0% The main decrease in sales in the reporting periods the corresponding periods of last year derives from the decrease in sales existing cusmers and from the decrease in the average exchange rate of the NIS in relation the U.S. dollar. - 12 -

Gross profit For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Gross profit 8.7 42.0% 10.9 36.3% -20.2% 5.7% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Gross profit 2.8 40.6% 3.4 37.0% -17.6% 3.6% Operating income For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Operating income 6.2 29.8% 7.7 25.7% -19.5% 4.1% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Operating income 1.9 27.5% 2.6 28.3% -26.9% -0.8% The increase in the operating income margin in the third quarter of the year the corresponding period of last year mainly results from the increase in the gross profit margin. - 13 -

2.1.3 The aromatic bath and body care segment The operating results of the aromatic bath and body care segment ("Laline Candles and Soaps Ltd.") are presented at full holding rate (100%). Sales For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Rate of change Sales 125.7 108.8 15.5% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Rate of change Sales 45.5 37.9 20.1% The main increase in sales turnover in the reporting periods the corresponding periods of last year arises from the increase in sales of the sre chain in Israel, among others, due opening new sres, the sales of a directly-operated sre in Times Square, New York, which began operating in late 2015 and the increase in same sre sales in the reporting period the corresponding period of last year, less the effect of the timing of the Jewish Holidays this year which fell on Ocber 2, 2016 and which was also expressed in the results of the fourth quarter of 2016 as opposed the corresponding period of last year in which the Jewish Holidays fell on September 13, 2015 and therefore most of their effect was expressed in the results of the third quarter of 2015. Gross profit For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Gross profit 82.0 65.2% 70.7 65.0% 16.0% 0.2% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Gross profit 28.7 63.1% 23.7 62.5% 21.1% 0.6% The increase in the gross profit margin in the reporting periods the corresponding periods of last year arises from the higher mix of the sre chain's sales as opposed wholesales institutional cusmers and franchisees abroad which are characterized by a lower gross profit margin. - 14 -

Operating income For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Operating income 7.5 6.0% 11.5 10.5% -34.8% -4.6% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Operating income 2.7 5.8% 3.4 9.0% -20.6% -3.1% The decrease in operating income in the reporting periods the corresponding periods of last year mainly derives from opening Laline's sre in New York. - 15 -

3. The Group's business results ACCOUNTING REPORT a. The Company's revenues are affected by seasonality, which is generally expressed by increased sales during Passover, the Holiday season and the fourth quarter of the year as a result of the effect of winter sales. b. The Company has elected as its accounting policy present the equity earnings of companies accounted for at equity in operating income since the investment in these companies forms part of the Company's operating and strategic activity. Condensed consolidated accounting statements of profit or loss (NIS in thousands) Periods Quarters Year 1-9/2016 (*) 1-9/2015 (**) 7-9/2016 (*) 7-9/2015 (**) 2015 (*) Revenues from sales and services 1,045,996 945,603 365,056 304,724 1,322,427 Cost of sales 461,523 411,521 162,139 137,224 572,170 Gross profit 584,473 534,082 202,917 167,500 750,257 Gross profit margin 55.9% 56.5% 55.6% 55.0% 56.7% Selling and marketing expenses 531,050 497,522 184,291 165,904 679,463 General and administrative expenses 13,333 11,922 5,933 3,400 16,265 Other expenses (income) (36) 182 (36) 107 (2,060) Company's share of earnings of companies accounted for at equity, net 5,703 10,345 2,731 5,093 11,435 Operating income (loss) 45,829 34,801 15,460 3,182 68,024 Operating income margin 4.4% 3.7% 4.2% 1.0% 5.1% Financial expenses (income), net 10,037 (1,145) 6,879 (12,092) 2,400 Income (loss) before tax 35,792 35,946 8,581 15,274 65,624 Taxes on income (tax benefit) 7,744 6,761 1,434 2,983 10,943 Net income 28,048 29,185 7,147 12,291 54,681 Net income margin 7.2% 1.3% 7.2% 0.2% 4.1% (*) Since May 1, 2015, after the option agreement between FWS and American Eagle was signed, the operating results of AE brands under FWS are reported using the equity method. Accordingly, the monetary results of this activity are recorded in equity earnings, based on 50% holding, in the item "Company's share of earnings of companies accounted for at equity, net" and they are not recognized in the consolidated statements of profit or loss, namely in the items revenues from sales, cost of sales, selling and marketing expenses, general and administrative expenses and etc. Please refer the segment analysis in order compare the results the corresponding period of last year. (**) Restated, see Note 2b the Company's interim financial statements as of September 30, 2016. - 16 -

Sales For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Rate of change Sales 1,046.0 945.6 10.6% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Rate of change Sales 365.1 304.7 19.8% The increase in sales turnover in the reporting period the corresponding period of last year arises from the growth in brand operations including in the new brands, Mango, Nike and Charles & Keith, which were launched during 2015 and the increase in same sre sales in the reporting period, offset by the decrease in sales resulting from the exclusion of the sales of the AE brands operation since May 1, 2015, as discussed above and less the effect of the timing of the Jewish Holidays this year which fell on Ocber 2, 2016 and which was also expressed in the results of the fourth quarter of 2016 as opposed the corresponding period of last year in which the Jewish Holidays fell on September 13, 2015 and therefore most of their effect was expressed in the results of the third quarter of 2015. The increase in sales turnover in the third quarter of the year the corresponding quarter of last year arises from the growth in operations mainly due increase in net retail spaces, the increase in same sre sales, less the effect of the timing of the Jewish Holidays this year, as explained above. Gross profit For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Gross profit 584.5 55.9% 534.1 56.5% 9.4% -0.6% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Gross profit 202.9 55.6% 167.5 55.0% 21.1% 0.6% For an analysis of the gross profit, see the Group's business results according operating segments in paragraph 2. - 17 -

Selling and marketing expenses For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Selling and marketing expenses 531.1 50.8% 497.5 52.6% 6.8% -1.8% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Selling and marketing expenses 184.3 50.5% 165.9 54.4% 11.1% -3.9% The increase in selling and marketing expenses in the reporting period the corresponding period of last year mainly arises from the growth in net retail spaces resulting from the opening of new sres and the launching of new brands, as described above, offset by the exclusion of the sales of the AE brands operation since May 1, 2015, as discussed above. The increase in selling and marketing expenses in the third quarter of the year the corresponding quarter of last year mainly arises from the increase in net retail spaces due opening new sres and the launch of new brands, as discussed above. General and administrative expenses For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of General and administrative expenses 13.3 1.3% 11.9 1.3% 11.8% - For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of General and administrative expenses 5.9 1.6% 3.4 1.1% 73.5% 0.5% The main increase in general and administrative expenses in the reporting period the corresponding period of last year is mainly a result of the non-recurring provision for legal expenses, offset by the exclusion of the expenses of the AE brands operation from May 1, 2015, as discussed above. The main increase in general and administrative expenses in the third quarter of 2016 the corresponding quarter of last year is mainly a result of the non-recurring provision for legal expenses. - 18 -

Equity earnings For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Equity earnings 5.7 0.5% 10.3 1.1% -44.7% -0.6% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Equity earnings 2.7 0.7% 5.1 1.7% -47.1% -1.0% Operating income For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Operating income 45.8 4.4% 34.8 3.7% 31.6% 0.7% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Operating income 15.5 4.2% 3.2 1.0% 384.4% 3.1% For an analysis of the operating income, see the Group's business results according operating segments in paragraph 2. Financial expenses Financial expenses in the reporting period resulted from foreign currency revaluation losses, net and hedges taling approximately NIS 5.0 million, interest expenses on long-term loans taling approximately NIS 7.3 million and commissions taling approximately NIS 1.9 million, offset by revaluation gains and net interest on securities taling approximately NIS 4.1 million. Financial income, net in the nine months ended September 30, 2015 resulted from foreign currency revaluation gains, net and hedges taling approximately NIS 7.5 million, revaluation gains and net interest on securities taling approximately NIS 1 million, offset by interest expenses on long-term loans taling approximately NIS 5.6 million and commissions taling approximately NIS 2.2 million. - 19 -

Financial expenses, net in the third quarter of the year resulted from foreign currency revaluation losses, net and hedges taling approximately NIS 3.9 million, interest expenses on long-term loans taling approximately NIS 2.5 million and commissions taling approximately NIS 0.8 million, offset by revaluation gains and net interest on securities taling approximately NIS 0.2 million. Financial income, net in the third quarter of 2015 resulted from foreign currency revaluation gains, net and hedges taling approximately NIS 13.6 million, revaluation gains and net interest on securities taling approximately NIS 1 million, offset by interest expenses on long-term loans taling approximately NIS 1.8 million and commissions taling approximately NIS 0.7 million. Tax burden (*) For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Tax burden 25.7% 26.4% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Tax burden 24.5% 29.3% *) After offsetting equity earnings. Net income For the nine months periods (NIS in millions) 1-9/2016 1-9/2015 Change Rate of Net income 28.0 2.7% 29.2 3.1% -4.1% -0.4% For the three months periods (NIS in millions) 7-9/2016 7-9/2015 Change Rate of Net income 7.1 2.0% 12.3 4.0% -42.3% -2.0% Earnings per share For the nine months periods (NIS) 1-9/2016 1-9/2015 Earnings per share 2.05 2.18-20 -

4. Financial position, equity, liquidity, financing resources and cash flows 4.1 Financial position The Company's tal consolidated balance sheet as of September 30, 2016 amounted approximately NIS 1,347.3 million approximately NIS 1,193.0 million as of September 30, 2015. Below is an analysis of the major changes in the consolidated balance sheet items as of September 30, 2016 the consolidated balance sheet as of September 30, 2015: Current assets - tal current assets as of September 30, 2016 amounted approximately NIS 834.2 million, representing about 61.9 tal balance sheet, approximately NIS 684.1 million, representing about 57.3 tal balance sheet as of September 30, 2015. The growth in current assets is a result of the increase in the balance of cash and cash equivalents, short-term investments, current maturity of securities measured at amortized cost, invenries, trade receivables and other accounts receivable. Non-current assets - tal non-current assets as of September 30, 2016 amounted approximately NIS 513.1 million, representing about 38.1 tal balance sheet, approximately NIS 508.9 million, representing about 42.7 tal balance sheet as of September 30, 2015. The growth is mainly a result of the increase in property, plant and equipment, the increase in sre removal fees, the increase in other intangible assets and the increase in deferred taxes. Current liabilities - tal current liabilities as of September 30, 2016 amounted approximately NIS 362.7 million, representing about 26.9 tal balance sheet, approximately NIS 282.2 million, representing about 23.7 tal balance sheet as of September 30, 2015. The growth in current liabilities is a result of the increase in credit from banks and in trade and other accounts payable. Non-current liabilities - tal non-current liabilities as of September 30, 2016 amounted approximately NIS 414.0 million, representing about 30.7 tal balance sheet, approximately NIS 372.2 million, representing about 31.2 tal balance sheet as of September 30, 2015. The growth is mainly a result of the increase in loans from banks. The Company's consolidated working capital as of September 30, 2016 amounted approximately NIS 471.5 million, approximately NIS 401.9 million as of September 30, 2015. The Company's consolidated current ratio as of September 30, 2016 is 2.30 2.42 as of September 30, 2015. The Company's consolidated quick ratio as of September 30, 2016 is 1.28 1.32 as of September 30, 2015. - 21 -

4.2 Equity The Company's equity as of September 30, 2016 amounted approximately NIS 570.7 million, approximately NIS 538.5 million as of September 30, 2015. In the reporting period, the Company's equity increased by approximately NIS 8.7 million. The increase is a result of comprehensive income of approximately NIS 27.7 million, offset by a dividend that was paid in a tal of approximately NIS 19.0 million. The ratio of equity tal consolidated balance sheet as of September 30, 2016 is about 42.4% about 45.1% as of September 30, 2015. 4.3 Liquidity and financing resources As of September 30, 2016, the Company holds financial assets that consist of cash, shortterm investments and current maturity of securities measured at amortized cost taling approximately NIS 249.6 million net of short-term financial liabilities that consist of short-term credit from banks taling NIS 102.1 million. Total short-term net financial balances amount approximately NIS 147.5million. As of September 30, 2015, the Company held financial assets that consist of cash, shortterm investments and current maturity of securities measured at amortized cost taling approximately NIS 178.1 million net of short-term financial liabilities that consist of short-term credit from banks taling NIS 85.4 million. Total short-term net financial balances amount approximately NIS 92.7 million. 4.4 Dividends According the decision of the Company's Board of March 26, 2002, the Company has a dividend distribution policy according which twice a year, after issuing the interim financial statements as of September 30 and after issuing the annual financial statements as of December 31 each year, the Company will distribute a dividend in the amount of at least 50 the distributable earnings retained in the nine months addressed in the financial statements. The Board will be entitled modify the dividend policy and invest the Company's retained earnings in developing the Company's business, at its discretion. In the Board's meeting of March 27, 2016, it was decided that effective from 2016, the Company will distribute a dividend once a year, after issuing the annual financial statements as of December 31 each year. The dividend will be in the amount of at least 50 the distributable earnings retained in the year addressed in the financial statements. The Board will be entitled modify the dividend policy and the actual distribution according the Company's needs. On March 27, 2016, the Company declared a dividend of approximately NIS 19.0 million in respect of the Company's retained earnings for the second half of 2015. The dividend was paid on May 1, 2016. - 22 -

4.5 Condensed consolidated statements of cash flows (NIS in thousands) Nine months ended September 30, 2016 2015 Net cash provided by (used in) operating activities 40,026 (38,651) Net cash used in investing activities: a. Net cash used in purchasing property, plant and equipment and intangible assets (35,822) (114,978) b. Net cash provided by (used in) other investments in financial assets, net (40,567) 24,174 c. Cash provided by (used in) acquiring operations 2,087 (4,311) d. Grant of loan others (1,000) - Net cash provided by financing activities 36,131 5,072 Adjustment arising from translating balances of cash (281) (426) Increase (decrease) in cash and cash equivalents 574 (129,120) 4.6 Cash flows from operating activities Net cash provided by operating activities in the reporting period taled approximately NIS 40.0 million, net cash used in operating activities taling approximately NIS 38.7 million in the corresponding period last year. Cash flows provided by operating activities in the reporting period derived from net income of approximately NIS 28.0 million, positive cash flows of approximately NIS 50.9 million in respect of adjustments profit and loss items, negative cash flows of approximately NIS 29.9 million from the increase in working capital items, net against net payments for interest and taxes taling approximately NIS 8.9 million. Cash flows provided by operating activities in the corresponding period of last year derived from net income of approximately NIS 29.2 million, positive cash flows of approximately NIS 35.7 million in respect of adjustments profit and loss items, negative cash flows of approximately NIS 85.0 million from the increase in working capital items, net against net payments for interest and taxes taling approximately NIS 18.6 million. 4.7 Cash flows from financing activities Net cash provided by financing activities in the reporting period taled approximately NIS 36.1 million, net cash provided by financing activities taling approximately NIS 5.1 million in the corresponding period of last year. Net cash provided by financing activities in the reporting period included a dividend paid in the amount of approximately NIS 19.0 million, the receipt of long-term loans from banks and others taling approximately NIS 100.0 million, the repayment of long-term loans taling approximately NIS 26.1 million and the repayment of short-term credit taling approximately NIS 18.8 million. - 23 -

Net cash provided by financing activities in the corresponding period of 2015 included a dividend paid in the amount of approximately NIS 46.5 million, the repayment of longterm loans and other liabilities from banks and others taling approximately NIS 16.8 million, the exercise of employee share options taling approximately NIS 2.5 million, the receipt of short-term credit from banks and others taling approximately NIS 58.2 million and the receipt of long-term loans from banks taling approximately NIS 7.6 million. B. DETAILS OF EXPOSURE TO AND MANAGEMENT OF MARKET RISKS The Company's risk management officer The person in charge of managing market risks at the Company is Mr. Shahar Rania, the Company's CFO. See details of Mr. Shahar Rania in Regulation 26a Chapter D the Periodic Report as of December 31, 2015. Description of market risks The Company's activities involve external risk facrs that are liable have a material effect on the Company's business operations and which cannot be quantified. The Company is exposed a variety of market risks in the ordinary course of its business, mainly fluctuations in interest rates, in the Israeli Consumer Price Index, in foreign currency rates (mainly the U.S. dollar and the Euro) and in quoted market prices of its securities traded in Israel arising from the securities portfolio that it holds, which directly and indirectly affect the Company's liquid assets, liabilities and business results. Many market risks such as changes in minimum wages, in the standard of living, in the security situation, in fashion trends and in the weather are not under the Company's control and cannot be hedged. In contrast, the Company hedges itself against risks of changes in foreign currency rates and erosion of liquid assets, as detailed below. In its Israeli activities, the Group is exposed changes in foreign currency exchange rates given that most of the Company's products are purchased in U.S. dollars and sold in NIS. In addition, the Company is exposed suppliers' credit and cusmers' credit abroad in respect of changes in the U.S. dollar exchange rate. The credit extended the Company's Israeli cusmers is in NIS and does not bear interest. - 24 -

The Company's market risk management policy The Company's policy is perform a complete cash flow hedge against fluctuations in exchange rates (that do not constitute an accounting hedge pursuant IAS 39), from the date of making the invenry order until the payment date. The Company occasionally uses future currency transactions, currency forward transactions and option writing and purchasing hedges against changes in exchange rates when making future payments. The Company also carries out hedge transactions in amounts derived from the scope of foreign suppliers' orders. The maturity dates of these transactions are determined based on the expected payment dates foreign suppliers. The Company's management invests the excess liquid assets according two business models: a. The first model - a financial asset portfolio that is mainly comprised of investment in assets in various channels as part of the cash flow hedge on the principal and interest repayment of the Company's liabilities and investment in short-term NIS channels through deposits, trust funds, Government bonds and corporate debentures. This portfolio is managed on the basis of fair value and its performance is measured at fair value in order achieve adequate return on excess liquid assets. b. The second model - a portfolio designed hold financial assets in order collect the projected cash flow therefrom simultaneously with the maturity dates of part of the Company's long-term liabilities and as part of the cash flow hedge on the Company's long-term liabilities. According the excess liquidity hedging policy as above, it was determined that these balances will be only invested in high quality Government bonds, short-term Government loans, corporate bonds and mutual funds. Moreover, the Company manages the investments based on the average life of the liabilities they hedge. The preparation of financial statements in conformity with generally accepted accounting principles requires management make estimates and assumptions that have an effect on the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of revenues and expenses during the reporting period. Some of the estimates that are liable have a material effect on the presentation of the data in the financial statements require exercising judgment in an environment of uncertainty. - 25 -

Derivative positions as of September 30, 2016 The Company has entered in dollar/nis hedging forward transactions taling US$ 3.0 million as specified below: Maturity date Amount in US$ in thousands Future rate Ocber 2016 1,500 3.847 Ocber 2016 1,500 3.803 Total 3,000 3.825 The Company has entered in complex (*) dollar/nis forward transactions taling US$ 42.0 million as specified below: Maturity date Amount in US$ in thousands Future rate Knock-in rate Ocber 2016 2,000 3.865 3.795 Ocber 2016 1,000 3.850 3.750 November 2016 3,000 3.990 3.810 November 2016 2,000 3.865 3.770 November 2016 2,000 3.860 3.750 November 2016 1,000 3.850 3.724 November 2016 2,000 3.770 3.677 December 2016 2,500 3.850 3.760 December 2016 2,500 3.850 3.748 December 2016 2,000 3.865 3.748 December 2016 2,000 3.850 3.705 December 2016 2,000 3.860 3.733 December 2016 2,000 3.950 3.757 January 2017 2,500 3.850 3.747 January 2017 2,000 3.760 3.660 January 2017 3,000 3.850 3.727 February 2017 2,500 3.850 3.720 February 2017 2,000 3.760 3.648 February 2017 3,000 3.850 3.712 March 2017 1,000 3.760 3.630 Total 42,000 3.853 3.733 (*) Complex - the foreign currency purchase rate will be calculated as the rate between the stated future rate and the knock-in rate. If the dollar's closing rate on the date of consummation of the transaction is at the knock-in rate or lower, the foreign currency will be purchased at the stated future rate. - 26 -

The Company has entered in dollar/nis put sale hedges taling US$ 6.0 million as specified below: Maturity date Amount in US$ in thousands Future rate February 2017 1,000 3.809 March 2017 1,000 3.809 April 2017 1,000 3.809 May 2017 1,000 3.809 June 2017 1,000 3.809 July 2017 1,000 3.809 Total 6,000 3.809 The Company has entered in Euro/NIS hedging forward transactions taling 8.5 million as specified below: Maturity date Amount in Euro in thousands Future rate Ocber 2016 1,500 4.170 December 2016 1,250 4.261 December 2016 1,250 4.263 January 2017 500 4.244 January 2017 1,000 4.248 February 2017 500 4.244 February 2017 1,000 4.249 March 2017 1,000 4.251 March 2017 500 4.246 Total 8,500 4.238 The Company has entered in complex (*) Euro/NIS forward transactions taling 4 million as specified below: Maturity date Amount in Euro in thousands Future rate Knock-in rate Ocber 2016 1,500 4.150 4.015 November 2016 1,250 4.300 4.125 December 2016 1,250 4.300 4.124 Total 4,000 4.244 4.083 (*) Complex - the foreign currency purchase rate will be calculated as the rate between the stated future rate and the knock-in rate. If the Euro's closing rate on the date of consummation of the transaction is at the knock-in rate or lower, the foreign currency will be purchased at the stated future rate. - 27 -

The Company has entered in Singapore dollar/nis hedging forward transactions taling SGD 1.1 million as specified below: Maturity date Amount in SGD in thousands Future rate Ocber 2016 550 2.843 November 2016 550 2.840 Total 1,100 2.842 Derivative positions as of September 30, 2015 The Company entered in dollar/nis complex hedging forward transactions taling US$ 17.5 million as specified below: Maturity date Amount in US$ in thousands Future rate Ocber 2015 3,000 3.888 November 2015 2,500 3.842 November 2015 1,500 3.779 December 2015 2,250 3.776 December 2015 2,250 3.776 January 2016 5,000 3.774 January 2016 1,000 3.809 Total 17,500 3.806 The Company entered in complex (*) dollar/nis forward transactions taling US$ 31.5 million as specified below: Maturity date Amount in US$ in thousands Future rate Knock-in rate Ocber 2015 2,500 3.860 3.740 Ocber 2015 2,500 3.850 3.695 Ocber 2015 2,500 3.850 3.706 November 2015 1,500 3.800 3.680 November 2015 2,500 3.850 3.753 December 2015 2,500 3.850 3.733 December 2015 4,500 3.800 3.677 January 2016 5,000 3.800 3.660 January 2016 1,500 3.820 3.704 February 2016 1,500 3.770 3.670 February 2016 1,500 3.770 3.670 February 2016 1,500 3.820 3.690 March 2016 2,000 3.820 3.710 Total 31,500 3.821 3.697 (*) Complex - the foreign currency purchase rate will be calculated as the rate between the stated future rate and the knock-in rate. If the dollar's closing rate on the date of consummation of the transaction is at the knock-in rate or lower, the foreign currency will be purchased at the stated future rate. - 28 -

The Company entered in Euro/NIS hedging forward transactions taling 23.0 million as specified below: Maturity date Amount in Euro in thousands Future rate Ocber 2015 1,000 4.404 Ocber 2015 1,500 4.281 Ocber 2015 1,500 4.232 November 2015 1,250 4.231 November 2015 1,500 4.281 November 2015 1,250 4.231 February 2016 1,000 4.168 March 2016 2,500 4.170 April 2016 3,500 4.170 May 2016 3,000 4.168 August 2016 1,000 4.168 September 2016 2,500 4.168 Ocber 2016 1,500 4.170 Total 23,000 4.205 The Company entered in Singapore dollar/nis hedging forward transactions taling SGD 3.7 million as specified below: Maturity date Amount in SGD in thousands Future rate November 2015 600 2.837 December 2015 600 2.837 February 2016 500 2.732 March 2016 500 2.729 April 2016 200 2.724 April 2016 400 2.720 May 2016 650 2.717 July 2016 250 2.712 Total 3,700 2.760-29 -