Tesco’s market share grew to 28.7%, with a 3.9% increase in UK like-for-like sales in Q3 and 3.2% during Christmas. The company raised its full-year profit forecast to between £2.9bn and £3.1bn. Despite this positive news, Tesco’s shares dropped, approaching the crucial 200-day moving average, which could signal a trend change if prices continue to fall. Sainsbury’s shares also dropped, even after reporting a 3.9% rise in Q3 sales and a 3.3% increase over Christmas. While grocery sales were solid, the Argos division saw declines of 1% in Q3 and 2.2% during Christmas. Operating profit forecasts remained over £1bn, with cash flow expectations improving to over £550m. There is speculation about a possible spin-off of Argos.

Primark Facing Challenges

Primark’s owner, Associated British Foods, struggled with a 2.7% drop in Q1 like-for-like sales, particularly in Europe where sales declined by 5.7%. Overall, total sales grew by 1%, but profits are expected to be lower than last year. The share price is around 1,800p, showing uncertainty in the market. Despite the rising cost of living, Tesco and Sainsbury’s have managed to grow, keeping their strong positions against competitors like Aldi and Lidl. They remain key players in the UK grocery market, despite facing challenges with their share prices. It’s puzzling that Tesco and Sainsbury’s received a negative market response despite their strong updates. Tesco’s price is testing its 200-day moving average and the 407p lows from August 2025, which acts as crucial support. For traders, this offers an opportunity to sell out-of-the-money put options, betting that this support level will hold despite the bearish sentiment. In a similar vein, Sainsbury’s stock fell despite solid grocery sales, likely hurt by poor performance in Argos. The stock is finding support near its own 200-day moving average and the 300p lows from December 2025. This dip may be an overreaction, making call options appealing if you believe the grocery performance is the key and support will hold.

Economic Data Impact

Investor nerves appear to stem from broader economic data that clouds the retail outlook. Recent ONS figures showed headline inflation fell to 3.1% in December 2025, but food inflation remains high at 5.2%, putting pressure on margins. Additionally, the GfK consumer confidence index for December 2025 remained deeply negative at -21, indicating that shoppers are still cautious. On the other hand, Associated British Foods faced a decline in share price due to genuinely weak numbers, now sitting on key support around 1,800p. If the stock can remain above its 2025 lows, it might suggest that selling pressure has eased for now. The main takeaway from these movements is the rising uncertainty, often reflected in higher implied volatility. This makes options strategies like straddles attractive for traders anticipating significant price moves in either direction but unsure of the cause. It’s essential to monitor whether these major support levels hold or break, as it will affect potential rebounds in the coming weeks. Reflecting on 2025, Tesco and Sainsbury’s effectively defended their positions against discount retailers like Aldi and Lidl. Kantar market share data from late 2025 indicated their growth primarily came at the expense of competitors like Morrison’s and Asda. This historical resilience suggests that current share price weakness may not accurately reflect their long-term market strength. Create your live VT Markets account and start trading now.

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