Modeling Guide

The Company makes available in its materials (earnings release and in the section “Interactive Results”), the amounts referring to GMV, or Gross Merchandise Value.

This concept reflects the amount transacted in Reais (R$) in the transaction, evidencing the Company’s performance both in the sale of products at brick-and-mortar stores, 1P (inventory products of the Company sold on online platforms), and marketplace-3P (sellers products sold on online platforms).

Difference between Total Gross GMV and Total Net GMV:

• Total Gross GMV: Amount transacted in Reais (R$) at our stores and online platforms not excluding returns and cancellations.

Figure comparable with that released by the market.

• Total Net GMV: Amount transacted in Reais (R$) at our stores and online platforms, net of returns and cancellations.

The concept of Digital Sales GMV reflects the online sales of 1P, marketplace, and the Click&Collect (which consists of online purchase and pick-up at the store by customers, which is also accounted for in physical store’s GMV). This concept is used to analyze the Company’s market share.

The Company’s revenue mainly derives from the sale of goods, but it also has other sources of income pegged to the operation, such as freight and assembly services, other services, installment plan/cards.

The Company makes available its revenue breakdown in its materials (earnings release, ITR [interim financial information]/DFP[standardized financial information]).

Concerning the marketplace (3P) operation, the Company’s revenue consolidates the amounts received as take rate over sellers’ sales. This is not disclosed by the Company, but an approximate percentage of the take rate can be obtained through the calculation: (A-B)/C; where A represents the sum of physical and online stores’ gross revenue, B represents the sum of net GMV of physical stores and 1P, and C represents the net GMV of the marketplace (3P).

The Company has different modes of payment, such as cash payment, payment book (installment plan) and credit card (co-branded and others).
The share of each mode of payment in the Company’s accounts receivable balance is presented in its earnings release.

We detail below the system used to measure the installment plan balances. It is worth noting that the amounts and rates used are hypothetical:

Context:

• The Company charges customers interest on installment sales. Revenue from merchandise sales, net of interest, is recognized on the date of sale. The sale price is the present value of the consideration, discounting the imputed interest rate from the installments to be received (Interest to be incurred). Interest is recognized over time according to the term of the contract, using the effective interest rate method. The breakdown of these two types of revenue, revenue from merchandise sales and interest income, is available in the earnings release and in the note “Sales and service revenue” of the Interim Financial Information (ITR)/Financial Statements (DFP).
• The Company negotiates the factoring of receivables with financial institutions, and the cost is presented in its financial result and recognized according to the term of the contract.

We present below a practical example of measurement and recognition of installment plan sales on the date of the sale and 30 days after the sale. (The example below shows hypothetical amounts and rates).

The Company’s accounts receivable balance are initially recorded as shown above, and, whenever necessary, the Company recognizes an allowance for expected credit losses, measured according to the payment profiles of sales during the 12-month period and corresponding historical credit losses, incurred during this period, adjusted for specific prospective factors related to the debtors and the economic environment. These expenses are presented in the note “Expenses by nature” of the Interim Financial Information (ITR)/Financial Statements (DFP).

In the case of accounts more than six months overdue, the Company derecognizes the asset originally recorded and writes off the total amount of the defaulting customer. Even after the write-off, the collection process remains unchanged, and the Company may subsequently receive amounts or sell said written-off portfolio.

The net financial result reflects the difference between financial income and expenses. Below, its structure:

1. I) Financial income, such as interest rates received over cash balance investments, as well as other investments, and other assets.
2. II) Financial expenses, which include payment of interest rates, and debt charges captured by the company.

III) CDCI Financial Expenses (Consumer Direct Credit with Intervention) relating to expense to finance installment plan operation through financial institutions.

1. IV) Card Receivable Sale Cost, considering that part of sales is made with credit cards, the Company may opt for anticipating this installment sale receivable, thus, a fee is charged for such anticipation.
2. V) Leasing liability interest rates, in light of the introduction of IFRS 16, companies now incorporate interest rates from leasing into financial results.
3. VI) Monetary Restatements

The Company’s effective tax rate may differ from 34% (25% for IRPJ [corporate income tax] 9% for CSLL [social contribution on net income]) due to accumulated losses in other years and tax benefits (such as, for instance, the subsidy detailed in the Company’s ITR/DFP).