J Sainsbury PLC

LSE:SBRY

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, and welcome to your Q3 2018/'19 analyst call with your host, Mike Coupe.Mike, please go ahead.

[Michael Andrew Coupe]

Good morning, everyone, and Happy New Year. And welcome to the Sainsbury's Quarter 3 Trading Update Call, which covers the 15 weeks to January 5.I'm joined here today by our CFO, Kevin O'Byrne. And I'm going to ask Kevin to run through some of our quarter 3 highlights in a moment, and then we'll hand you over for the Q&A.Just before I hand over to Kevin. I know you have all been keen to hear an update on our proposed merger with Asda. As you know, we made an application to the Competition Appeal Tribunal in December, as the CMA had not provided us with adequate time to respond to a large volume of working papers. The tribunal agreed that we needed additional time to respond to these papers, and we have since provided detailed responses to the CMA. The CMA has updated the timetable published on its website and now intends to publish provisional findings in January or early February rather than early January. I'm unable to comment beyond that, other to -- other than to say we continue to work constructively with the CMA and remain confident in the deal and our ability to deliver the synergies.Now Kevin will take you through the highlights of our quarter 3 trading period.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

Thanks, Mike. And welcome, everyone.I'll take you through some of the key numbers, turning first to like-for-likes.Retail like-for-like sales declined by 1.1%, with the positive Grocery number offset by General Merchandise declines. We've also disclosed total sales movements for Grocery, General Merchandise and Clothing.On Grocery, first. We've seen a solid performance over the quarter, reflecting strong service and availability and an improved price position versus our competitors. Behind the total sales growth of 0.4%, we saw a broadly similar volume performance to H1 in a slower market, with most of the change in headline growth coming from lower inflation. Market share data suggest that our grocery volume performance improved versus our competitors over the period, particularly in core Grocery categories. We continued to generate strong growth in our online grocery business, up 6%; and convenience stores, up 3%.General Merchandise saw a sales decline of 2.3%. Obviously delivered strong growth over the key Christmas weeks, but saw sales declines earlier in the quarter, impacted by a weak consumer backdrop and our decision to reduce promotional activity over Black Friday. We gained market share in key categories such as toys and electricals, but both of these categories were in decline over the period, with the toy market in particular down double digits.Argos stores inside Sainsbury's stores performed particularly well. And we're pleased to see the stores in their second year of trading delivered average like-for-like growth of above 10%, now in a much larger sample of 138 stores. Mobile transactions accounted for more than 50% of Argos sales over the Christmas period. And General Merchandise margins continued to be impacted by the highly competitive environment; and by the mix impact of strong growth in lower-margin categories such as mobile phones, smart audio and video gaming consoles.Finally, on Clothing, a headline sales decline of 0.2% represents a good performance relative to the markets despite fewer promotional days year-on-year. In the period, we delivered double-digit growth in full-price sales.So overall, a good operational performance against a tough backdrop, with some good progress across the group.We'll now open up the call for your questions.

[Operator]

[Operator Instructions] Your first question is from Nick Coulter from Citi.

[Nick Coulter, Director]

Can I just ask about the shape and drivers of your Grocery growth, firstly? You've alluded to very encouraging volume growth. And that looks like it's been progressive over the past few months, but my question was more on the mix shift, which looks like it's negative at both the market level but specifically in your offer. So it'd just be interesting to kind of understand the mix shift that you're seeing in Grocery notwithstanding the positive volume.

[Michael Andrew Coupe]

Yes, I think there's probably a couple of things to reflect on, Nick. I think, when all the dust has settled and we see all the market data, I suspect we will see a sort of slight down trading from a customer point of view. So effectively that has an impact on the average selling prices what we sell in our business, in our Grocery business in particular. That's the first point. The second point is, relatively speaking, we, as we mentioned, have improved our price position to our competitors, and therefore we have in effect less inflation in our business than our mainstream competitors. And if you look at the main difference between the previous reported quarter and the quarter that we just reported, that's probably the biggest swing factor, but those 2 things kind of are working hand-in-hand. And that's why we remain cautious about the outlook over the next period of time whilst we go through this period of relative uncertainty.

[Nick Coulter, Director]

Yes. I mean your like-for-like inflation, on the available data, looks to be better than the market, but it looks like you've got a disproportionate mix shift over and above the market. Is there anything you'd call out on promotional shift or the like that would make that difference? Because obviously that is impacting your headline growth rate.

[Michael Andrew Coupe]

Yes. I mean it is slightly less promotional than it was last year, so you could argue that would work the other way. And to be quite honest, at this point, given that we've only just closed the quarter, sort of doing all the detailed analyses of exactly where the mix shifted and why is something that we'll be doing over the next period of time. But you can take it in the round. And I suspect we will see this reflected more widely in the market, that there has been some sense of caution from customers and, in effect, they have downgraded either within the mix within each individual company or overall between companies. And I'll say I think you can see that reflected in the market data that was reported over the last couple of days.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

Nick, one example that we'd see in our business, for example, in Taste the Difference we -- while it grew over the trading period, it grew more slowly than it did in previous quarters. So that would indicate a little bit of caution from consumers.

[Nick Coulter, Director]

Okay, great. And then just secondly, on General Merchandise. I guess this has been a talking point this morning. And I know it's a sales call, but your actions around Black Friday seemed to have been about not chasing profitless sales, so notwithstanding a very distant seasonal pattern, how should we think about the sales mix relative to your comments at the half? And I know you kind of called out lower-margin categories in your commentary, but how should we think about the mix versus the trend that we had in the first half?

[Michael Andrew Coupe]

Yes. I mean, again, we talked a little bit about this at our November update. The reality is that, first of all, there's an extremely cautious consumer backdrop. And secondly, there are also retailers with distressed stock, so picking your way through that in a way that is sensible strikes the right balance between offering great value to customers but doesn't blow your brains out on selling stuff at low or no margins is the line that we have trodden during the course of this quarter. That meant that we were less promotional on Black Friday and in the end, that's the biggest single factor in our underlying General Merchandise offer, but we also saw the business perform extremely strongly in the last week or so before Christmas, indeed the week after Christmas. So a lot of the volume came back but came back extremely late and probably at a level that even we weren't expecting. The other big swing factor that we've talked about is the fact that there are some pretty significant parts of our business, toys being the most obvious example, where the market has been in quite dramatic decline. So toys, double-digit decline, if you look at the overall quarter. So we would have done extremely well in market share terms, but it's against a backdrop where the market has been extremely challenged in that particular category.

[Nick Coulter, Director]

So when you look at that strategy to kind of target full-price sales over promotions, I guess, both in Clothing and in General Merchandise across Argos and in, in-store, is that -- has that strategy paid off or paid back in the round?

[Michael Andrew Coupe]

Yes. I mean we wouldn't do it if we didn't think it was commercially sensible. And as I said, we are managing our way through a very uncertain time with a very cautious consumer outlook and striking the right balance between delivering value to customers, where you're competing with people who quite often are in distress. Making sure that we manage our margins sensibly and that we manage our stock cover sensibly is the line that we are treading. And we think we've done a pretty good job over the Christmas period. And...

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

And Nick, that's against a backdrop of a difficult mix in the business because we're clearly mixing down into lower-margin electricals more, which clearly hints we're trying to manage that.

[Nick Coulter, Director]

Is that mix impact more exaggerated than it was in Q2? Or...

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

No.

[Nick Coulter, Director]

No. Okay, that's...

[Michael Andrew Coupe]

No, no, similar.

[Operator]

The next question is from Dusan Milo from Berenberg.

[Dusan Milosavljevic, Analyst]

Just had, well, 2 questions for me, I guess. And the first one is on if you can talk a little bit more about the Grocery growth throughout the 15-week period and what the exit rate was on Grocery sales. Because we've got kind of contradicting commentary from the companies and things that Kantar is kind of indicating. And then the second one is on General Merchandise. You mentioned that the toys were in double-digit decline, and yet saying that you outperformed the market, so can you tell us maybe by how much you were underperforming and what the margin growth was over the period in the categories that you're benchmarking against?

[Michael Andrew Coupe]

I might disappoint you [ over the answer ] on both the questions. We wouldn't comment on the -- any particular aspect of the quarter. We report a 15-week quarter. We've reflected in our statement the fact that Christmas came very late and was very different to the last time that Christmas fell on a Tuesday. It's a particularly challenging phasing because of the way we trade for less hours on the Sunday, but the pattern of trade was actually very different this year to the last time Christmas fell on a Tuesday, which was 2012. But we'd never comment on an exit rate. We would look at the quarter in the round because there are always things around about in any trading quarter. And indeed, we don't break out any particular category. We've given you as much color, I think, as we can on toys. The market was in double-digit decline. I mean you can take it, I guess, by implication that our toy business saw a slight decline but nevertheless our market share grew pretty significantly. And we took more than our fair share of the demise of Toys "R" Us during the quarter of the trading period. So that's about as far as we would go in terms of trying to disaggregate the numbers any further than we already talked about.

[Dusan Milosavljevic, Analyst]

And just one more then just on -- you're flagging that you've improved your pricing relative to peers. Can you maybe kind of just kind of -- is it the external data that you're looking at or your internal data, is it in any specific kind of category? Or anything further -- any further comments on that?

[Michael Andrew Coupe]

No, no. We -- I mean we, again, wouldn't break it out, but it is backed up by the recent Kantar data as well. And to be quite honest, we are a few days after the end of the quarter. And therefore, unpicking the sort of relative mix effect versus the pricing effect is something that we will be doing over the next period of time on a much more detailed basis category by category, product by product. So I couldn't -- even if I wanted to, I couldn't give you a lot more color than we've already talked about, but we've definitely seen, relatively speaking, an improvement in our price position to our competitors. But we've also seen effectively a mix effect where customers are choosing to be cautious and, in effect, trading down. And we've already talked a little bit about the fact that's reflected in a slowdown in our Taste the Difference growth, and that has an effect on the price that we realize for every unit of product that we sell.

[Operator]

The next question is from Kiranjot Grewal from the Bank of America Merrill Lynch.

[Kiranjot Kaur Grewal, Associate and Analyst]

Firstly, could you comment on the new space impacts in the quarter? And also, are there any suggestions that consumers are trading down in terms of stores, i.e. are you picking up any new customers at Sainsbury's potentially from the higher-end players? And then the third question is on price positioning. You said it's improving. How have you done that? Is it more promotions, or is it still focusing on reducing the underlying unit pricing?

[Michael Andrew Coupe]

Yes. I mean, the trade down point, I don't think we'll know until we see switching data from the various panels that we get. And we haven't had that data yet, so it's difficult to comment directly on it other than you saw the Kantar data yesterday. And that would imply a sort of level of caution in the way that customers have shopped and, broadly speaking, some elements of trading down either within the mix or within the various players in the marketplace. The extent to which we benefited from that, I couldn't comment on at this particular point in time simply because we don't have the data. As far as pricing is concerned, in effect, we are inflating less fast than our competitors is probably the best way of putting it. There is still inflation in the marketplace, but one way or another, our inflation is lower than our competitors', which implies that our prices aren't going up as fast as our competitors.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

Just on the new space point. The -- where we put space in the group, it's more in General Merchandise and Clothing. We've allocated more space in the supermarkets to Clothing. And General Merchandise, clearly we're rolling out the store-in-stores, so we're giving more space to General Merchandise. There's not a lot of increase in the new space in food, as you'd expect.

[Michael Andrew Coupe]

Yes. And I think, in that, so far this year, we've opened 3 supermarkets and 4 convenience stores. So it's very much in the rounding.

[Kiranjot Kaur Grewal, Associate and Analyst]

Just, I suppose, following up on your comment on Clothing. Your Clothing print seems pretty resilient, particularly given the backdrop of apparel in the U.K. Any comments on this? Or is it predominantly driven by that Clothing space you've been located?

[Michael Andrew Coupe]

No. We're pleased with the performance. I mean the Clothing business in Sainsbury's has been with us not just in the last year but for many years. Clearly, it benefits a little bit from space, but it's also now increasingly being driven by growth in online. So we're seeing strong growth, albeit from a very small base, in our online business. And indeed so the overall macro picture is we have grown share in General Merchandise and Clothing, so against a challenging backdrop we are pretty pleased with the performance.

[Operator]

The next question is from Andrew Gwynn from Exane.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Two questions from me -- actually, I'll go for 3. So I'll be the boring person who asks about consensus; maybe also for early comments on next year, if you want to make any. The other question, a little bit more interesting. I mean obviously, over the summer, you highlighted some operational issues within the stores. Do you think that's sort of now fully behind us? Obviously, there've been some commentary over Christmas that you've had perhaps a couple of availability issues, but I think, as you said yourself, you can always find those in any store. And the last one, which is a very big picture question but with the benefit of hindsight: Is there anything you'd have done significantly different about Christmas?

[Michael Andrew Coupe]

Okay, well, let's take the first one. You know that we would measure our operational metrics literally by the hour ongoing, and that's particularly the case in the run-up to Christmas. If you look at availability, it's perhaps one measure. Our in-store availability this year was identical to last year, so that would suggest that we're running our stores to a similar operational standard. Anecdotally, lots of us were asked in the business, and I think we'd all take the view that it was one of the smoothest operational Christmases that we've ever experienced. We didn't have any weather disruption. None of our DCs fell over. All of our systems worked and we came out of Christmas pretty clean within the Grocery business at stock, so we're pretty pleased by how we managed that. And there was a degree of nervousness, given the amount of new management in our business, in September, but it has to be said that our store teams pulled together brilliantly well and were really up for the challenge and did a great job of serving customers week in, week out. As far as the -- with the benefit of hindsight, as any Christmas, there will be plenty of things that we will go back on and say we could do differently or better. I think we pitched it pretty well. We knew that it was going to be a challenging backdrop. We bought accordingly. We were also determined that we weren't going to get carried away in terms of the blood and guts of some of the extreme distress in the marketplace. I think there was an element of having to hold our nerve. It was certainly, I think, people have [ with respectfully ] reflected the fact that it was a damp November in every sense of the word. And therefore, that certainly created a degree of nervousness and making sure that we were able to manage our stocks very tightly, but it did come through and it came through late. So likely with these things, there are always things that you can do -- you can learn and to do better, and it will be naïve not to say so. I'm not going to highlight them now because we haven't really done the wash-up. And we won't do that for another couple of weeks, but we were pretty pleased with the way that we managed things overall.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

And Andrew, just picking up your first point, on consensus. As you know, we don't routinely comment on consensus in a trading statement, so if really there's something to say, we'd have said it. And as far as next year, we don't comment on the consensus for next year until we complete this year. And I think, given the current environment, that's probably more relevant this year than any year.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Okay, that's the 3 ones I had. I mean somebody asked Morrisons. I think it was David, asked Morrisons yesterday just on the kind of Brexit impact. Given your year ends in March, i.e. a bit nearer kind of B day, whatever people are calling it, is there anything you'd want to flag in terms of cash flow for year-end and in particular around inventory build?

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

Not at this stage, but that's not to say that there might not. I mean, clearly, we don't run the business for a day in the middle of March. We run the business for customers. So if we needed to do something to protect the business and give better service to customers, I'd be very relaxed that we would do that because it would actually have no real effect on our cash. It'd just be a sort of a timing difference but not -- don't envisage anything material at this stage.

[Michael Andrew Coupe]

Yes. I mean just to reflect. I mean the question has been asked a couple of times in different ways. If you think about Brexit, there are in effect only 2 scenarios. There is one where there is some kind of deal done and some kind of continuity and some kind of transition period, in which case nothing changes. The other extreme, which is there's a hard Brexit, the least of our problems will be managing whether or not we've got working capital tied up in stock. It will become a significant operational challenge not just for us but for the whole industry and for retail in general and, I suspect, for the country overall. So any questions you might have about how much working capital we might have to put into the business will be in the rounding if it ever came to a hard Brexit.

[Andrew Philip Gwynn, Senior Food Researcher & Analyst of Food Retail]

Yes. Let's hope not.

[Operator]

The next question is from Bruno Monteyne from Bernstein.

[Bruno Monteyne, Senior Analyst]

First question is on what you said about the merger processing. You're working constructively with the CMA, but given that they have a standard option for an 8-week extension for more complex cases, which seems to apply, I just don't see how it's constructive if you have to go to court to get 11 days when actually 8 week ought to be feasible within their own processes. So how constructive is that process really? How come you have to come to such a clash?

[Michael Andrew Coupe]

Well, we -- I stand by what I've already said, and I'm not going to go beyond what I've already said. We disagreed with the CMA about the timetable they set for our responses to their working papers, and the court ruled in our favor. So in the end, that played its way out. We subsequently met the deadline that was then set. We've delivered all of our responses to the working papers, and the timetable is what the timetable is in terms of what's currently published on the CMA website. And beyond that, you'd have to ask them about whether or not they may or may not extend the process beyond that.

[Bruno Monteyne, Senior Analyst]

And then the second question is around Grocery. I mean it's in a few calls where you referred to inflating less than your competitors. We can sort of see that in the data, about your volumes being in the round the same as other grocers, but given how you've been investing in prices, you seem comfortable with the volumes. Your reported like-for-likes with even the Kantar growth, none of them really is the -- at the bottom of the league of all the grocery -- the big 4 retailers. How long will you -- do you think you will need to invest and keep going before you're sort of catching back up or not anymore at the bottom of the grocery league table in growth numbers?

[Michael Andrew Coupe]

Well, we just don't agree with you. And it's not borne out by the facts. If you look at our underlying volume performance over the last reported 12 weeks, we would certainly be in the pack. And in fact, depending on how you exactly measure it, we'd either be first or second, so -- and even within that, there were some anomalies. A number of our competitors, for instance, have invested a lot of money in growing their alcohol sales, probably at no profit. So I just don't agree with your question. We can show you the slide, the Kantar slide, that shows you the 12-week volume performance and the 4-week volume performance relative to our mainstream competitors. And as I say, either we are first or second in that league table.

[Bruno Monteyne, Senior Analyst]

And on the -- you do refer to strong sales growth over Christmas in General Merchandising. I mean strong sales growth. Should I be thinking about close to double-digit strong sales growth? Or how do you define strong sales growth over Christmas?

[Michael Andrew Coupe]

We're not going to break out any particular time period. If you try to characterize the quarter, remember it started somewhere towards the early -- say, the late part of September, early part of October. The early part of the season was characterized by the fact it was mostly like for summer. And there wasn't really a cold snap, and all of the categories that would respond to colder weather underperformed quite significantly. And a number of people have reflected on the fact that, particularly in Clothing and General Merchandise, November was extremely challenging, and we would certainly see that reflected in our numbers. We've already talked about the fact that we deliberately were less promotional for Black Friday. And that's the single biggest factor that has played into our General Merchandise performance, but then the latter part of the season, particularly the week before Christmas and the week after Christmas, we saw extremely strong sales and stronger than we were expecting. So in the round that was the sort of flavor of the quarter. Actually giving you the specifics of exactly which week we did more percentages, we're not going to do that, Bruno, I'm afraid.

[Operator]

The next question comes from David McCarthy from HSBC.

[David McCarthy, Head of Consumer Retail, Europe]

A couple of things. One is, can we go back to the toy market. You say it's in double-digit decline. I can see why there would be some decline if capacity has come out the market. What I don't get is why it's so big. So is there something structural going on there? Is it that people are just buying different products for their kids, more clothing, whatever it is, rather than toys? Have you got behind this and why you've got this double-digit decline? And then secondly, if it is something structural, doesn't that concern you because you are the market leader? And you bought Argos, which is obviously very big in toys, a market leader in toys. Are you concerned about the structure of that toy market? And then secondly, on Black Friday, you withdrew from that. You downplayed it. And obviously, that's had an impact on sales, as you said, but presumably it's had a positive impact on your margin. But then you've said that margins in General Merchandise are under pressure, so is the underlying situation on margins in General Merchandise worse than first appears when we look at your figures and your comments?

[Michael Andrew Coupe]

Well, I'll ask Kevin to comment specifically on that particular issue. To be honest, Dave, at this point, I can't unpick exactly how children received their Christmas gifts this year. I suspect, when it comes to it, things like gaming would probably have grown more. And that will be treated as a separate category to toys. There are [ on bias ] less babies being born in the U.K., so that might also reflect a little bit on the market. The extent of which it's structural versus cyclical, I genuinely couldn't tell you. [ I probably other things ] to reflect on it. There weren't really any big sort of merchandise releases this year. So we didn't have a Frozen- or a Toy Story-type scenario driving toy sales. So I suspect, when it comes to it, we'll find that it's cyclical, not structural, but I genuinely couldn't answer the question directly, simply because we haven't got all the market data in. And it will only be over the next 3 or 4 weeks that we'll be able to analyze in any great depth exactly what's gone on within that market. It's fair to say, however, it is surprising. I mean it's actually the rate of decline is pretty -- broadly pretty significant year-on-year and, as you say, isn't directly explainable by the fact that there has been some market exits during the course of the year.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

And then -- and clearly, Dave, we did well from a share point of view in that declining market, as we mentioned. On the margin, Black Friday, yes, we did. We managed it more for margin than for sales. And yes, we grew -- we got the result we wanted. And mix is the biggest element in the margin pressure that we're talking about because, if you sort of laid out our sort of big categories, electricals will be a lower margin than toys. Toys will be a lower margin than home and furnishings, et cetera. And there's a mix towards electricals which we saw in the first half as well. And clearly, there is some underlying pressure in the marketplace. We've got lots of retailers in distress. People will be running their business for cash, et cetera. So there's some underlying there, but the big issue is mix for us.

[David McCarthy, Head of Consumer Retail, Europe]

And so is the margin pressure you're referring to just around the gross margin, or is there cost pressure as well that goes beyond that?

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

No, it's just around the gross margin, and it's mixing into lower-gross-margin categories.

[Operator]

The next question is from Clive Black from Shore Capital.

[Clive W. Black, Head of Research]

Firstly, can I just ask very briefly what pace or the promotional participation for Sainsbury's versus the market in Grocery? And then secondly, just more broadly, perhaps for Mike, do you have an explanation why the pattern of trading in Christmas 2018 was so different? Because it's been reasonably consistent for many years. And just referring to your comment about the uncertain consumer, which we kind of get, but how do you see that manifesting itself in their behavior beyond buying less, trading down more broadly? And in that respect, should we be particularly worried about your Q4?

[Michael Andrew Coupe]

Yes. I mean taking each one. The level of promotional participation in our business actually declined year-on-year. And I haven't seen all of the Kantar data, but I suspect you'll find that some others have increased their level of promotional participation but -- and that will come out and be clearer over the next few days and weeks. I'm not sure I can explain the pattern of trades to you. 2012 was the last time that Christmas fell on a Tuesday. And to your point, when we look historically and we plan for Christmas, we find that the pattern of trade is almost identical to the last time Christmas fell on a relevant day. And it worked for the category and macro level for the business notwithstanding the change of shape on things like online and convenience stores. So I genuinely can't explain why it came very heavily late. And it was surprising. And there aren't any weather -- obvious weather impacts that we can point out either. So I think it's one of those things which is going to be a mystery, and let's hope that next year does reflect a more historical trading pattern. It does make life easier to plan. We had the stock, so it wasn't an issue around date codes because all the stuff that we put into the business was post Christmas [ dated ] from the Thursday and the Friday but it came through on the Sunday and Monday rather than the Friday and Saturday. So from that point of view, it is what it is, but we reflect on it but I suspect we probably won't be able to answer your question. As far as the consumer backdrop is concerned, we flagged it in November. We will continue to flag it. If you take the macro trends, retail should be enjoying a reasonably robust period at the moment because there is more disposable income out there, but if you look at the way customers are behaving, they're behaving as if there is a recession, is probably the best way of describing it. That means that they're tending to defer the purchases that they don't need to make. And you can see that reflected in things like car sales. It's reflected in the fact, I think, when we look at the market dynamics, that there will be a general trade down either within businesses or between businesses. And you can make your own judgments about how that might play out over the next 8 to 10 weeks. And unless and until we get certainty around what's happening on Brexit, I suspect we will continue to be in that period of uncertainty, but beyond that I can't really reflect.

[Clive W. Black, Head of Research]

Okay. And Mike, can you just give us any color on the magnitude of your promotional participation year-on-year? [ Price we sign ].

[Michael Andrew Coupe]

I mean there's a, and to your point, potential to lower year-on-year...

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

Yes.

[Michael Andrew Coupe]

[ So it's all ] mid-20s to low -- mid- to low 20s.

[Operator]

The next question is from Rob Joyce from Goldman Sachs.

[Robert Joyce, Equity Analyst]

A couple from me on the Argos business actually. So thanks for very kindly providing the figures of the over 10% like-for-like of the stores you've moved into and the Sainsbury stores. I guess my question on that is, is the implication that the residual legacy Argos stores are actually performing slightly below on a like-for-like basis the 2.3% negative we saw in the General Merchandise category? And what are the implications for profitability on that basis given it's been traditionally quite an operationally geared business? That's the first one. And the second one is just on the mix impact you referred to, the sort of shift into lower-gross-margin categories. I think, when we first discussed Argos a couple of years ago when you acquired it, we sort of noted that had been a major contributor to sort of a 10-year decline in the gross margin of the business. And you were looking at ways of reversing that, moving into other categories. Can you sort of give us an update on how that has been going?

[Michael Andrew Coupe]

Yes. I mean I suspect. I mean I don't have the actual breakdown, but I suspect, when you disaggregate the numbers, you'll see that within the sort of the core non-store-in-store Argos business it would probably be broadly in line with the numbers that we reported at the headline level, so sort of negative 2%, 2.5% level. So there is that change. Of course, a lot of the business is now initiated online. I mean it's incredible that 50% of Argos' sales were initiated through mobile phones, so again that reflects the changing nature of the market. And on the buying cycle, we've owned the business now for 2 years. You're buying basically 9 to 12 months in advance in a business like Argos. So we've only just integrated the buying teams in the summer between the 2 organizations, but we would continue to have the aspiration of rebalancing the mix more towards the higher-margin categories, and they will be things like Clothing and home. We've launched Clothing online within Argos, as one example, but it's not as immediate as you get within the Grocery business simply because the buying cycles are longer and the kind of choices you make take longer to actually find their way through in the overall performance of the business. But that would certainly be our challenge and aspiration over the next period of time.

[Kevin O'Byrne, CFO, Member of the Operating Board & Director]

And Robert, it's probably worth saying it'll take some time. And the current backdrop is not exactly helpful with the uncertainty we've talked about.

[Operator]

At present, we have no further questions. [Operator Instructions] And our next question, from Sreedhar Mahamkali from Sainsbury's (sic) [ Macquarie ].

[Sreedhar Mahamkali, Analyst]

Just one quick question for me. In the round, if the profit expectations are broadly unchanged, it either means you've planned for this like-for-like outcome, or the margins were better somewhere else. Or cost savings came through. Can you just talk through the mix of that? And is this the sort of context you plan for, for 2019 in terms of like-for-likes as you sort of look forward? Should we be expecting a year of like-for-likes -- not necessarily wanting to get guidance on it, but just in terms of talk through how you see the year, please, if you could.

[Michael Andrew Coupe]

Yes. I mean again I'm going to disappoint you slightly by not disaggregating the numbers, but you can take it, hopefully, from the tone of the conversation that we're having and indeed the slides that we gave you in November that we're expecting, first of all, the consumer backdrop to be uncertain and challenging; and secondly, with the amount of distress in retail, that there will be a lot of stock at significant discounts. And of course, that was amplified by the fact that seasonally the weather was unhelpful to any form of general merchandising, clothing retailing. And therefore, that, if anything, amplified some of the trends that you've seen more widely. We planned the business on that basis. We're pretty pleased with the way that we've managed the balance between making sure that we shared to our customers in the right way that we managed the availability within our business but we also didn't leave ourselves with significant or unmanageable levels of stock. So in the rounds, we've done that, and we've done, we think, a pretty good job. And we will continue to manage the business on that basis. You can take from me no indications of forward projections beyond the end of what we -- the end of this financial year and what in effect we've implied within the trading statement today. And we're not going to get into speculation about what next year looks like because we're in such uncertain times.

[Sreedhar Mahamkali, Analyst]

Understand. So -- but the like-for-likes, as we see them, were entirely in line with your expectations, your own expectations.

[Michael Andrew Coupe]

Yes. I mean I guess, if you reflected on the numbers, it would have been nicer to have had a stronger GM performance, but we would have expected that the consumer is under pressure, and that, that would be reflected in the sales that we've seen come through. And we did deliberately step back from Black Friday, and we knew that would inevitably have an impact on the headline sales number.

[Operator]

Thank you. And at this point, we have no further questions. Let me pass back to Mike for closing comments.

[Michael Andrew Coupe]

Well, thank you, everybody. I'm looking forward to seeing you over the next period of time. I'm sure we'll catch up soon. And in the meantime, Happy New Near to everybody. And we look forward to talking to you at our next update, which is sometime in May. See you soon. Thank you.

[Unknown Executive]

Yes.

[Michael Andrew Coupe]

Thank you.

[Operator]

Thank you. That does conclude the call for today. You may now disconnect. Thanks for joining, and enjoy the rest of your day.