Positive Tesco and Sainsbury updates prompt puzzling market reaction [Video]

In this week’s podcast we talked about the negative market reaction to the latest numbers from Tesco and Sainsbury and posed the question as to why?

Let’s look at the numbers along with the charts as well.

Tesco shares fell sharply despite growing its market share to 28.7% and increasing UK LFL sales by 3.9% in Q3 and 3.2% over Christmas.

They also raised their full year group adjusted operating profit to the upper end of its £2.9bn and £3.1bn range.

As we can see from the chart below the price action is testing the long term 200-day MA which suggests that a trend change might be coming if the price drops through here on a sustained basis, as well as the August lows of 407p.

Tesco daily chart

If we can hold above these lows then sentiment should remain positive.

Similarly, Sainsburys posted a solid set of Q3 numbers yet you wouldn’t know it judging by the market reaction which has seen the shares fall sharply.

Let’s look at the numbers.

Q3 sales were up by 3.9% with Christmas sales up by 3.3%.

Grocery sales were a standout performer with 5.4% during Q3 and 5.1% in the 6 weeks to 3rd January.

The laggard was the Argos business which saw Q3 sales decline 1% and the Christmas period undergo a 2.2% decline.

On underlying operating profits, the outlook was kept unchanged at more than £1bn, however the cash flow forecast was raised to more than £550m from more than £500m.

It would appear that today’s reaction has been to the disappointing Argos numbers, which seem to be a case of focusing on the wrong thing.

There has been speculation that the Argos business could be spun off with CEO Simon Roberts not ruling out the option given recent reports that JD. Com was interested.

Whether this happens or not is neither here nor there, but even if this were to happen it's unlikely to be a cost-free exercise.

Argos stores are now fully embedded into Sainsbury stores, as well as its supply chains.

It will not be a straightforward process to unlink them in any spinoff, and in my opinion that makes it not worth considering.

Why bother in investing in an Argos transformation plan if you’re then looking to sell that very same business?

Does management really want to pull on that thread and unravel a decade worth of work.

Just because the acquisition of Argos hasn’t turned out the way it was hoped, doesn’t mean you then throw all that hard work away.

Looking at the chart, we can see support coming in at the 200-day MA and the December lows at 300p.

J Sainsbury daily chart

As long as recent share price weakness is contained to this key support level then the uptrend from the April 2025 lows should be maintained.

Primark owner Associated British Foods has had a bit of a nightmare with the share price reaction to its recent numbers, after reporting a Q1 LFL sales decline of 2.7%.

The main laggard was in Europe which saw a -5.7% decline in LFL sales, while the UK saw a rise of 1.7%.

Total sales growth for the retail unit was 1%.

The food business was a mixed bag with weakness in the US acting as a drag.

Management says they expect group full year adjusted operating profit to be below last year.

The share price now sits on a key support level around 1,800p and is also well off its recent peaks at 2,350p.

Does that mean more losses are coming? Not necessarily if we look at the chart, but we need to hold above the 2025 lows of 1,818p.

Associated British foods daily chart

The big question is now whether all the bad news is priced in, and whether the expansion in the US starts to pay off, along with a turnaround in the UK as cost-of-living pressures drive up footfall once more at the lower end of the UK retail market.

One of the surprises of 2025 was how well the likes of Sainsbury and Tesco performed at a time when the cost of living remains challenging, and the likes of Aldi and Lidl continue to grow their market share.

It is to Tesco and Sainsbury’s credit that the growth that Aldi and Lidl are experiencing is coming at the expense of the likes of Morrison and Asda.

On current trends that doesn’t look like it will change, which should mean that Tesco and Sainsbury ought to continue to hold their positions as the eminent players in the UK grocery market, despite recent share price weakness.