Sector movers: Supermarket stocks surge as Tesco pleases with revival plans

The food and drug retail sector was trading nearly 10% higher on Thursday as investors gave a warm welcome to revival plans at industry giant Tesco, which reported a less-than-expected fall in sales over the crucial Christmas period.

Tesco's shares were up nearly 13% at 205.3p in afternoon trade after the company said it would cut costs, close unprofitable stores and lower prices in a bid to regain competitiveness in the UK.

It also sold its Blinkbox division, said it is considering offloading its data-analysis unit, closed its defined benefit pension scheme to new entrants and confirmed it would not pay a final dividend this year, as it looks to shore up its balance sheet.

“There is more to do but we have taken the first important steps in the right direction,” said chief executive Dave Lewis, who was given the job of turning around the struggling business last September.

The news came as Tesco unveiled a “broad-based improvement” in UK trading with the like-for-like (LFL) sales decline easing to just 0.3% over Christmas (six weeks ended 3 January), surprising analysts who were expecting as much as a 2.5% fall.

This compared with a 2.9% LFL slump in the third quarter, which itself was better than the 5.4% slide seen in the preceding three months.

Analyst Alex Joyner from Galvan Research said that Tesco "may have staunched the bleeding from some of its wounds".

"The price cuts are encouraging, but ASDA and Sainsbury’s have already launched similar offensives earlier this week. It remains to be seen if any of the Big Four can do enough to lure savvy shoppers back from Aldi and Lidl," he said.

Shares in Sainsbury's were up 9% at 250p, one day after the market gave a mixed reaction to its own third-quarter update, in which it said it was lowering prices on over 700 of its most popular products. LFL sales in Sainsbury's third quarter were down 1.7%.

Wm Morrison was up 7% at 183.4p, while online peer Ocado gained 4.4% to 407.6p.

Top performing sectors so far today

Food & Drug Retailers 2,961.13 +9.55%
Mobile Telecommunications 5,078.68 +4.08%
Industrial Metals & Mining 1,522.61 +3.20%
Construction & Materials 4,108.40 +3.01%
Tobacco 41,052.08 +2.93%

Bottom performing sectors so far today
Electricity 9,524.39 -0.16%
General Retailers 2,900.48 -0.11%