J Sainsbury's (JSNSF) CEO Mike Coupe on Q3 2016 Trading Update (Transcript)

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J Sainsbury plc (OTCQX:JSNSF) Q3 2016 Trading Update Call January 11, 2016 3:30 AM ET

Executives

Mike Coupe - CEO

Ed Barker - Interim CFO

Analysts

Bruno Monteyne - Bernstein

Niamh McSherry - Deutsche Bank

Rob Joyce - Goldman Sachs

Kiranjot Grewal - Bank of America Merrill Lynch

Edouard Aubin - Morgan Stanley

Alistair Davies - Investec

Nick Coulter - Citi

Clive Black - Shore Capital

James Tracey - Redburn Partners

Stewart McGuire - Credit Suisse

Operator

Welcome ladies and gentlemen to your Q3 2016-2017 Analyst Call with your host Mike Coupe. Mike, please go ahead.

Mike Coupe

Good morning, everyone and happy New Year and welcome to the Quarter Three Sainsbury's Trading Update Call.

I'm joined by Ed Barker, our Interim CFO and Ed will run through the highlights and then we'll hand over to you for Q&A. Ed?

Ed Barker

Thanks Mike. Good morning, everybody. As we indicated at our Interims in November for the remainder of this year we're going to continue to report the old Sainsbury's and Argos performance separately.

So starting first with the Sainsbury's performance; total ex-fuel sales were up 0.8% in the quarter. This is after adjusting the comparatives for the sale of the pharmacy business. Unadjusted total ex-fuel sales are down 0.3% in the quarter and we guided to this adjustment at Interims.

Like-for-like ex-fuel sales were up 0.1% and we're measuring food price deflation in the quarter at 0.5%. Total volume growth and like-for-like volumes flat year-on-year and we've again achieved like-for-like transaction growth across all of channels; supermarkets, convenience and online and our convenience and online channels both performed well; convenience growing 6%, online growing over 9% with orders growing 13%.

In terms of clothing, clothing has grown 10% and general merchandise 3%, so again another pleasing performance.

In terms of the Argos performance, over the same Q3 period 15 weeks to the 7 January, Argos has seen further improvements in its sales run rate during the quarter. Total sales growth of 4.1% and like-for-like growth of 4% and that trading performance was ahead of our expectations.

The key drivers of that performance versus last year are the technology areas of mobiles and computers and we've also seen good growth in toys and wearable technology, both of which have been key focuses for us over that peak trading period.

This means that if were to combine the Argos like-for-like and the Sainsbury's like-for-like results, results in a combined like-for-like of 1% in Q3. So overall a solid performance in Q3. It's a continued execution of our strategy in a very competitive market and given current market conditions, we're comfortable with the consensus that's published on our website and just to confirm that that's at $573 million.

With that, I think we'll pass over to questions.

Question-and-Answer Session

Operator

Thank you. Your question-and-answer session will now begin. [Operator Instructions] Your first question is from Bruno Monteyne from Bernstein. Please go ahead.

Bruno Monteyne

Good morning.

Mike Coupe

Good morning, Bruno.

Ed Barker

Good morning, Bruno.

Bruno Monteyne

Two questions for me. So one is the U.K. in general and you guys clearly had a very good Christmas trading. More volumes coming through the door than probably people had hoped for and inflation slightly recovering.

Surely that ought to be a profit boost for the entire sector and you guys. I am talking about the food retailer and Argos. So can you comment on that, to what extent you should've seen a prophet uplift from this better-than-expected Christmas in the U.K.?

My second question is I noted a comment about your growth in your credit card business? I noted you have very competitive personal loans, not that I need one, but I told you it was of the best rate in the market.

Are you starting to -- I've seen in the press release more importance in terms of the growth of how aggressive you're going to grow the bank and the financial services book. Thank you.

Mike Coupe

I'll ask Ed to talk about the first part of your question and then I'll talk more broadly about the bank if that's okay Bruno.

Ed Barker

Bruno, we're confirming our consensus on our website today $573 million, in terms of -- we're pleased with that performance. We've released the Argos numbers ahead of expectations again, but this is a very competitive market and we're not going to get carried away in a very competitive market overall.

So happy to confirm consensus and we'll come back to you at Prelims and talk through the breakout of how that number is going to work between the different businesses, but overall everything that we said at Interims really remains valid.

Bruno Monteyne

If may be a different way of trying to ask the same question, I know there was the Christmas volume uplift in the U.K. at Sainsbury's higher than you would have planned for getting into Christmas, was it truly ahead of the [explosion loss and an unexpected splurge] by U.K. consumers or did you plan for that?

Ed Barker

No, so I don't think it was unexpected. We were flat like-for-like volumes and that's compares to a small negative in the previous quarter. So we haven't seen a really significant move within Sainsbury's and then a lot of what you're also seeing within the market I think is different timing of people over different quarters as well.

You have to remember that this is a 15-week quarter for Sainsbury's that we're reporting on as part of it and what you'll be picking up is other people's different timing differences in their reporting periods over Christmas.

Bruno Monteyne

Okay. Thank you.

Mike Coupe

As far as the bank is concerned, yes, the bank's been through a pretty significant period of re-platforming, things being well covered in the past, but now that we have the new banking platforms in place, we've got some quite interesting and exciting things coming down the track.

So you refer to credit cards, we also plan to re-launch our insurance proposition in the early part of the new year and indeed we're launching mortgages during the course of the early part of next year as well.

So all of that gives us a lot of belief in the bank and we'll talk I'm sure more about that when we actually get to our Prelim Update in November, but we think it's a hidden jewel within the overall organization and we believe that the one plus one, equals more than two, formula works very well.

With the bank, we know that if somebody owns the Sainsbury's credit card, they spend more money in the supermarket chain and we think that's a reason at least in part to drive the credit card business.

Bruno Monteyne

Thank you.

Operator

Thank you. Your next question is from Niamh McSherry from Deutsche Bank. Please go ahead.

Niamh McSherry

Good morning.

Mike Coupe

Good morning.

Ed Barker

Good morning, Niamh.

Niamh McSherry

I was just wondering if you can give any more color on the performance of the Argos business or specifically the Argos concessions. That was the first question.

And then the second question was on the general merchandise and clothing business, do you think that you're gaining market share in these segments? Thanks.

Mike Coupe

Yes, the Argos concessions, we're really pleased with the performance, the ones that have annualized showed over the quarter 20% to 25% sales growth, but actually we're pushing numbers higher than that over that period before Christmas. So we're pushing towards 40% in the period up to Christmas.

So again that gives us if anything more confidence in the business case that we put to the market. Previously, we relocated two Argos stores and closed the existing stores and moved them into our stores and again the performance if anything was ahead of the expectations that we had set ourselves.

So, although it's a very short period of time, we think we have demonstrated that our underlying modeling works. There is no reasons not to believe that the requisite works.

And thirdly, the operational performance over the period, again there have been lots of reservations about our systems and whether or not the proposition will hold up. The operational performance of the Argos business is extremely strong. So, we are really pleased.

Website availability was good. Product availability was good. Pricing was where it was needed to be and so the colleagues in Argos did a fantastic job. So we are 30 in now -- 30 stores in the stores. We're planning the next big tranche over the next period of time.

We've committed to 250 over the next three years past the other. So data point that's worth reemphasizing is the fact that we do get an uplift of 1% to 2% in the grocery business and again that has held consistently across the quarter and again that gives us confidence in the underlying synergy case that we put to the market.

By definition if clothing was growing by 10%, it would have grown market share. I think you'll see other report quite a challenging clothing markets and so we're really, really pleased with that performance.

I think if there is one number I'll pick out as a standout number that will be it. I think the clothing business was really, really exceptional over the Christmas quarter. And even general merchandise again in a challenging market we are showing growth.

So the clothing and general merchandise business, the Argos business all gives us confidence in our ability to continue to grow our non-food business as we look forward.

Niamh McSherry

And maybe -- sorry, if I just follow-up on the clothing, the very strong growth that you've had in clothing, and was that in any particular categories like children, women and do you think that it benefited from football from Argos or do you think it's just a good range that you had this year, anything in particular driving the growth?

Mike Coupe

No, I wouldn’t pick out any particular sector. There are some high level stats where I think we've talked before that we're now the sixth largest clothing retailer by volume and in some categories I've given the stat in children where I think we now sell more volume than Marks & Spenser in Children's wear.

So that shows the way that we've developed the proposition over the last few years and I think five years ago, you wouldn’t have believed that was possible.

But it's across the piece and it's in the supermarket chain. Argos wouldn't really have made a material difference to the clothing business within the supermarket business. It's very much around the proposition that we offer our customers in our supermarket. Perhaps the only way of top spin above and beyond that is that we do have an online proposition in clothing.

It's not massive, but it certainly has grown pretty strongly over the last year. So that adds a bit of top spin to the numbers, but the 10% growth is predominantly driven by -- across all categories in the supermarket chain and as I say was a standout performance.

Niamh McSherry

Okay. Thanks.

Operator

Thank you. Your next question is from Rob Joyce from Goldman Sachs. Please go ahead.

Rob Joyce

Hi, good morning, guys. Happy new Year.

Mike Coupe

Rob good morning.

Ed Barker

Happy New Year.

Rob Joyce

Thank you. Two for me, just on the uncertainty around the impact of the devaluation of sterling, what kind of ONS data that would indicate food import prices are rising probably around 1% in the quarter, which is ahead of where your deflation number around minus 0.5?

Can you square those two numbers? Does that import level of import pressure, cost pressures make sense to you guys and are you actually having to observe a little bit of on the margin there?

And then the second one is just on Argos, are you able to give us a feel similar to having in the food business on the price volume in that business over the period? Thanks a lot.

Mike Coupe

Yes, on inflation you would have seen the previous quarter, we reported was about minus 1, the last quarter was minus 0.5. So by definition prices are falling less quickly than they were previously.

It still remains uncertain. We've said and we'll reemphasize the fact that we'll remain competitive. Our job is to do everything we can to mitigate cost prices within our supply chains and we'll make sure that we put our best foot forward as far as our customers are concerned.

It is one of the uncertainties in the market and we recognize that in the trading statement and I genuinely couldn't put my hand on my heart and predict what the future might look like because there are so many moving parts.

Although the currency is devalued, you also get commodity price changes which do have an influence on underlying cost prices and therefore potentially retail prices. So, we'll see how it plays out over the next period of time.

We will remain competitive. We've got confidence in our underlying proposition. I think that's reflected in the numbers that we've published over the last period. In terms of the volume value equation, I don't think we break that out specifically…

Ed Barker

Not for different categories, no and so the Argos performance, we won't be splitting that out overall.

Mike Coupe

And we'll give a fair amount of color in terms of where the business has performed well and that's particular in tech, in wearable, in toys and some areas of seasonal. So that gives you a flavor, but Argos has such a diverse set of price points. I am not sure it would be a particularly valid measure; it’s not the same as the food business in that respect.

Rob Joyce

Okay. Thanks very much. Just very quickly on the first point. I guess and simple terms from what you've just seen in the past quarter, did you see input cost rising ahead of consumer prices?

Mike Coupe

We wouldn’t talk specifically about that because we don't give guidance on gross margins and we are not going to start giving guidance on gross margins now. So you’ll have to work that out for yourself. You get the published national data. We certainly wouldn't conduct supply negotiations in public, but we would recognize the fact that the outlook as we look forward is uncertain.

Rob Joyce

Okay. Thanks very much.

Operator

Thank you. Your next question is from Kiranjot Grewal from Bank of America Merrill Lynch.

Kiranjot Grewal

Hey, just two questions for me. Firstly, are you able to give us more details on how the sales developed throughout the quarter? Was the positive like-for-like number driven predominantly by a strong December or Christmas, if so why?

And then secondly, should we expect any margin -- any mix impact from your performance over the last quarter?

Ed Barker

As I said already, we don’t comment specifically on margins, so you've got the published national data. You get the Cantor data the Nielsen data. You can draw your own conclusions.

We also report the 15 weeks and we don’t break out any particular time periods. We do it in a very vanilla way. We do it in a very like-for-like way. The only flavor I’d give is more subjective than objective, which was undoubtedly the case, that it came quite late and that's probably something to do with the fact that Christmas was on a Sunday and therefore people were kind of saving up to the backend of the week.

And it continued post Christmas pretty strongly as well and that's probably a function of the fact that lots of people chose to take an extended break and that seems to be reflected itself in the underlying performance.

So we're pleased with the way our operational standards held up in both Argos and Sainsbury's over the Christmas period. We think we did a great job for our customers. We think that's reflected in the numbers. We don't break out any particular sub time periods. It did come late and it did stay pretty strong after Christmas in our business.

Kiranjot Grewal

Thank you.

Operator

Thank you. Your next question is from Edouard Aubin from Morgan Stanley.

Edouard Aubin

Yeah, good morning guys. Just two quick one for me, good morning. The first one is on convenience, I think the division did better this quarter than it did a few months ago, few quarters ago. So with less deflation in the system, should we expect the outperformance of the division to increase going forward?

And then the second one is just to come back on Argos, I think Fast Track was launched around two years ago and the things run more smoothly, logistically this Christmas than in '15?

Mike Coupe

Yeah in the Convenience business, as you say was an improvement in the performance over the quarter. We would argue that was propositional. There were lots of big product launches like food to go that have particularly helped the convenience business.

It disproportionately relies on those types of products, on the food for now products. So we're pretty pleased with that. Of course we also rolled out contact list during the course of the quarter a bit behind the curve, but I'm pretty sure that, that would have had a beneficial impact on the Convenience business over the quarter.

As I've already said, the Argos proposition was extremely strong during the course. So I don’t think we had any major outages or issues and the guys did a fantastic job of delivering the broad brand promise.

Ed Barker

Yes, Fast Track launched November last year. So we're annualizing it now for the first time and you've seen in the quarter that the Internet sales grew at Argos by 13%. They now represent that 57% of the sales and the Fast Track growth is in line with that as well and starts to make up a little bit more of the mix.

And one [sound like] for you, just to give you the quantity of vans and people out there is over that Black Friday weekend, we delivered 0.25 million Fast Track deliveries. So it's really starting to ramp up and I think from the advertising that you've seen over the Christmas period as well, really starting to get some traction with customers.

It's a proposition that it over 95% of the country, which means that Fast Track deliveries were still taking place on Christmas Eve as well. So we were delivering all the way up to Christmas Eve and then again straight after Christmas. So it's a strong proposition one we're proud of.

Edouard Aubin

Okay. Thanks Ed.

Operator

Thank you. Your next question comes from Alistair Davies from Investec. Please go ahead.

Alistair Davies

Good morning.

Mike Coupe

Good morning.

Alistair Davies

Good morning. Couple of questions for me, I am not sure how far I'll get with them, but I'll give it a try. Just in the spirit of Argos reporting, is there anything you can give in terms of gross margin because you obviously talk of like-for-like sales being better than expected.

Second one just in terms of things like white goods and home ware, just read between the comments with a little bit disappointing and lastly is there any kind of narrowing guidance you could give on the Argos profit contribution given Q3 has got 50%, 60% more important than Q4? So you should a -- we should have a very good idea of where that stands now?

Mike Coupe

I shouldn’t lie that, we might answer some of it, certainly answer the last one, which is the guidance remains as it was in November. So the short answer is no. We weren’t guiding up the guidance and that doesn't just go for the Argos guidance. It goes for the guidance as well.

There is nothing that's happened that we're reporting today that would change anything that we said in November and we would want to stress that. We gave you quite a lot of flavor on where we did well. I think you can draw your own conclusions in terms of the mix, but we're not going to break out the gross margin, but you can work out from the categories how the mix might've gone.

And actually the performance of the business was pretty strong overall. So again we're not going to pick out any of the categories you specifically mentioned, but actually in the realm we were pleased with the performance and I think if you look at the market data such as it is, we were seeing market share growth in most of the areas that we compete in, which as I say is pleasing considering the backdrop of what was a very competitive market.

Alistair Davies

Okay. Thanks a lot.

Operator

Thank you. [Operator Instructions] Your next question comes from Nick Coulter from Citi. Please go ahead.

Nick Coulter

Hi.

Mike Coupe

Good morning, Nick.

Nick Coulter

Hi. Good morning. Three or four if I may please, actually could you point specifically on the grocery life like volumes quarter-over-quarter notwithstanding a multi-buy impact.

And then secondly, from your comments on grocery deflation, you seem to be implying non-food inflation in the supermarket. Directionally, is that correct? And then on the $0.09 grocery online sales growth and I think you said, that you said order growth, could you talk about your grocery online marketing strategy and then how you're driving volumes into that channel that seems to be stronger than some in the market?

And then lastly if I may just follow-up on a earlier question, could you comment on the space impacting convenience on the understanding that your like-for-like positive in that channel, thank you.

Mike Coupe

I'll ask Ed to do the second and the fourth and I'll do the first and the third. I think the grocery volumes are actually on the faith of the statement. So in the previous quarter underlying like-for-like grocery volumes were slightly down in this quarter. We're calling them as flat with overall volume growth.

The implied deflation we talked about is 0.5% and that was roundabout minus 1% in the previous quarter and grocery online, again we believe is a strong story, as you say with 9% sales growth, 13% volume growth.

Actually we're not as aggressive as perhaps some of our competitors are on marketing. Our outline business, this is a function of the fact that we made lots and lots of incremental improvements in our service proposition, whether it's a checkout or whether it's ease-of-use of the website, whether it's the launch of the mobile app, which now accounts for close on double-digit sales within the groceries online business.

The improvement in the click and collect proposition now in over 200 supermarkets, all of these things have added incrementally to the business. So it is absolutely not driven by aggressive vouchering. It's actually driven by an underlying improvement in the service proposition.

And I think most independent commentators will suggest that our groceries and online proposition is market-leading given all of the changes that we've made. So we're pretty pleased with that performance. It's not driven or spiked by any form of particularly aggressive vouchering and that is certainly not the case in our competitors.

Nick Coulter

Thanks. Can I just follow-up on the like-for-like volumes going on the face, I read that as supermarket like-for-like volumes flat up to pace with grocery like-for-like volumes, perhaps you're seeing this grocery like-for-like volumes flat than with presumably supermarket volumes, like-for-like volumes up given the strong performance in general merchandise, is that the correct read?

Mike Coupe

Yeah. I think overall and for food specifically broadly flat in Q3 would be the read in terms of like-for-like volume performance. So yeah, if you're going to take the 0.1% like-for-like overall, you need to wait some of that to the outperformance in GM and closing first and that said, an allocation of 10% or 15% in terms of that volume, which would lead the like-for-like therefore slightly negative on the food side offset by that deflation.

Nick Coulter

Okay. And then just on the deflation -- inflation, you're talking about down 0.5 in food or grocery, and then just kind of working out on what you said on volumes for supermarket that would seem to imply inflation is up in non-feed and clearly given that it is 10% or 15% than that looks like a notable delta, is that correct?

Ed Barker

I don’t think you can necessarily draw that conclusion from it. What you've seen in GM and clothing is good growth overall, clothing growing at 10% and GM at 3%. What we don’t do is split out the inflation impact there.

Nick Coulter

Okay. Then I think we can do the math. Thank you.

Ed Barker

Yeah. In terms of the other question you had was just the space impact on convenience, so overall convenience growth 6% and that includes a positive like-for-like as part of it. So there is some space impact in there.

The space impact that we're seeing in convenience is getting lower though and that is purely the math of the rollout of convenient stores. We were 98 two years ago, 69 last year and we're going to be around the 40 level this year. So you will see that space contributions start to drop off.

Nick Coulter

So just to help us on that 6%, is that mostly space or mostly like-for-like?

Ed Barker

It's mostly space, but the good positive like-for-like in there as well.

Nick Coulter

Super. Thank you.

Operator

Thank you. Your next question comes from Clive Black from Shore Capital. Please go ahead.

Clive Black

Good morning, gentlemen and happy New Year to you.

Mike Coupe

Good morning, Clive.

Ed Barker

Good morning Clive.

Clive Black

Well done on a decent performance.

Mike Coupe

Thank you.

Clive Black

Just one question for me, just chipping out a lot of the supermarket business, the GM, the clothing take into account online and convenience does it concern you Mike about the grocery momentum in the supermarket?

Mike Coupe

No, it's in line with what we've set out to do. So we're very clear on where we want to invest in our proposition and where we have invested in our proposition. Particularly in quality fresh foods, we have seen volume growth and pretty strong volume growth.

So we've broken out some specific categories like Taste the Difference, Party Food to give some color to that, but it is true across the piece. Now you would have seen and you can see the market write-downs in particularly the category performances that there have certainly been a certain amount of spike in other sectors of the market and that might have helped drive some of our competitor's performance.

But we're very clear about what we are trying to do in our food business and that’s particularly investing in the right areas of quality and the right categories and that's particularly in the added value fresh food areas.

And equally I think you can also see some indications of where we want to take our supermarket business and the success of the 30 Argos Concessions in the Sainsbury's stores and also the read through that that has in the underlying supermarket business gives us some confidence that we can reengineer over the medium to long-term how our supermarkets are structured, how our supermarkets perform.

So we are definitely in a period of transition. There is no doubt about that. But I think against that context, the business has actually proved to be remarkably robust and you know yourself that we’ve made a lot of quite significant propositional changes over the last year and we're pleased that that's reflected in the kind of volume performance that we've seen in the underlying grocery business.

Clive Black

You've said in the past that through the curve you would expect Sainsbury's to be there and thereabouts amongst the better performers of the supermarket, superstore groups in the future, is that expectation hereon very heavily predicated on the benefit of additional footfall from Argos Concessions. So do you think you can do that on a standalone basis?

Mike Coupe

Well I think it starts with making sure we got a core food proposition that works. So we shouldn’t have to rely on the upside from the Argos Concessions. It's very much in our minds that we have to be brilliant food retailers, maintain our store standards, simplify the proposition in the way that we've done pretty significantly over the last year and invest in the quality of the product that we sell.

We also recognize that we have to make sure we invest in the areas of channel growth that underpin the performance in the online grocery business and in the convenience business and the nonfood business, clothing, general merchandise and Argos gives us top spin for the future.

So we don't want to holistically it feels like a good story, but we'll never get away from the fact that our underlying success will always be built on the foundations of a strong food business.

Clive Black

Okay. Well, thank you for that color and wish you well.

Mike Coupe

Thank you.

Operator

Thank you. Next question from James Tracey from Redburn. Please go ahead.

James Tracey

Good morning, Mike and Ed.

Mike Coupe

Good morning, James.

James Tracey

I've just got a question on how you see the future direction of like-for-like sales growth. So it's been a good improvement in like-for-like minus 1.1 prior quarter to 0.1 this quarter, more often just seen an improvement the industry seems to be better across Christmas.

Is this indicative of an inflection point where we should see positive like-for-like going forward or is it too soon to say? Thank you.

Mike Coupe

I would never call the future. I think we live and we put on the face of the statement there is certain amount of uncertainty as we look forward and there are many moving parts. You take the last year most of what's happened in the last year was not predicted. I had to say the least.

So we would stand by that. So I would be cautious and I certainly wouldn't call a point of inflection. The important thing from our perspective is that we have a very clear strategy. We're executing against that strategy and if you unpick the various elements of what have delivered in the last quarter, it's fair to say that we're pretty pleased with the parts of the strategy that we've actually executed over the last quarter and not lease things like the Argos concession, not lease concessions, not lease the investment in the quality of the food that we sell and not lease the investment in online groceries and convenience shops.

So we're pretty confident over the medium to long term. We've got the right strategy in place and to predict what may or may not happen in the future and the point of inflection or otherwise, I don't think we'll ever be out of call that until we can look back over several years. So I wouldn't go as far as predicting or calling the term.

James Tracey

So just a follow-up on that Mike, you seem quite confident in the strategy and it's been fairly consistent over the past time that you've been here, where does the uncertainty lie? Could you be a bit more specific about what is more uncertain at the moment?

Mike Coupe

I think the consumer outlook, the impact of the movements we've seen in currency or commodity prices all of those things remain uncertain. So I think the playing field is being well articulated over the last period of time.

We would just strike a cautionary tone in sort of reading through some of the market performance or indeed our relative performance of the market and projecting that into the future.

There are some quirks about the way that some of the date results are reported by some of the outside agencies. So Cantor and Nielsen, you need to be quite careful in terms of the specific days year-on-year. Remember this was a year when because of the leap year, things went back by a couple of days.

Ed Barker

Yes, it alludes to your note yesterday James. I think you picked up on this movement of two days and the effect that that might have on the numbers.

Mike Coupe

I think the other point I would make is that the market generally was very driven by specific categories, not least alcohol and again that's a specific that would pertain to the Christmas period and perhaps the New Year period as well, but it's necessarily reflective in what the future might look like.

So that might be another reason why you would want to be slightly cautious in reading through some kind of significant shift in the underlying market performance.

James Tracey

Thanks a lot Mike, thanks Ed.

Mike Coupe

Thanks James.

Operator

Thank you. Your next question comes from Stewart McGuire from Credit Suisse. Please go ahead.

Stewart McGuire

Hey Mike. Hi Ed.

Mike Coupe

Good morning.

Stewart McGuire

I think as a follow-up question to you, I think it was Nick's question on online, can you give us an idea of customer acquisition or whether these -- this growth is from the existing customer base, clearly that it's strong growth and if it is from these existing customers, it's interesting to hear how you did that thanks?

Mike Coupe

Well, the shape is very much as it has been, which in the sense that we've seen an ongoing increase in customer numbers. So we've seen order numbers go up by 13% and that would be largely driven by the acquisition in new customers.

The other I guess big factor is that we've seen an increase in the penetration of delivery path and delivery policy is a very good way of keeping your loyal customers more loyal and so it's a combination of those two factors.

So there is no doubt that it's been a I would put a consolidation of the existing customer base driven by an increasing penetration of delivery parts, but you certainly couldn't -- we could certainly couldn't see those kind of growth numbers without acquiring customers broadly speaking in line with the order growth if you wanted to try and unpick it.

And that's because we've done a great job of serving new customers brilliantly well. We haven't gone overboard on vouchering. We certainly haven't got to some of the [wider accessories] of some of our competitors. One of the reasons why we have confidence in the business is that it is very much about the underlying proposition and the improvement in the underlying proposition, all about spending both loads of marketing on targeted or excessive vouchering.

So we believe it's a solid platform. It's driven by a combination of our loyal customers becoming more loyal, but also about acquiring new customers.

Stewart McGuire

Can you help us unpick it a little bit? Clearly the improvements that you've made wouldn't be known to new customers. So there must be as you can give, so you have that 13% breakdown would be great?

Mike Coupe

I don't think I'll go further than I've already gone, which is yes we've increased the penetration of delivery path that's certainly had an impact on our loyal customers remaining loyal and becoming more loyal and secondly if you're trying to put a number on customer acquisition if you used order numbers as a proxy for that, you probably wouldn't be far wrong.

It will be of the order of 10% without getting specific in terms of the numbers. In terms of the propositional improvements there is a whole bunch of things we've done in the last year. Click and Collect is now in 200 shots. It would've accounting for something like 5% or 6% of sales over Christmas and that would be a significant improvement in penetration.

It allows us to offer more slot to our customers, which from -- even though you might be new to the proposition, the fact you can get a slot you want would be a reason for being loyal to us and we launched the mobile app and that would have added to customer utility and of course same day delivery in some shops.

So we're offering same day delivery in around 30 shops now and that again is part of the proposition that we would want to extend as we look forward. So there is also little things that's it's difficult to put your finger on a particular server bullet, but by just offering more utility, more convenience, making easier to navigate your way through our websites, making the points of contact more available through online and mobile, all of these things add incremental benefits.

Stewart McGuire

Thanks Mike.

Operator

Thank you. We have no further questions.

Mike Coupe

Well thank you everybody. Look forward to seeing some if not all of you over the next quarter and if I don't see you in that period of time no doubt we'll see or speak to you at our Prelims in May. Thank you very much and happy New Year to everybody again.

Operator

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thanks for joining and enjoy the rest of your day.

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