On the face of it, a near 14% slump in profits and CEO Mike Coupe warning the market was likely to remain competitive for the foreseeable future looked to be more bad news for Sainsbury’s. However, pre-tax profits of £584m were a good way above market consensus of £574m, and the supermarket also returned to positive like-for-like sales growth during the year to 12 March.

The silver lining failed to impress the City, though, with shares plunging 6.3% on Wednesday and down almost 9% this week to 262.8p. Underlying group sales were down 1.1% to £25.8bn, and a 12% fall in EBIT to £635m reflected a margin decline of 33 basis points to 2.8%.

Dave McCarthy at HSBC said: “This may be better than some of its peers, but in absolute terms it is concerning. With Tesco reinvesting most of its gains back into the offer, Asda likely to get more price aggressive and the discounters’ continued expansion, life is only going to get tougher for Sainsbury’s at a time when management is likely to be distracted by Argos.” Darren Shirley of Shore Capital also harboured concerns Sainsbury’s was complicating its business through the Argos deal just as Tesco was “getting its act together”.

Investment bank Jefferies suggested the over-delivery in profits had been rapidly superseded by a Kantar market share update suggesting the group has entered 2016/17 with deteriorating like-for-like momentum. The contagion from Sainsbury’s also took Tesco down 5.3% to 160p and Morrisons down 1.8% to 187.5p.

But investors were cheered by the Morrisons Q1 update on Thursday, with the stock clawing back most of its losses at the time of writing. Like-for-like sales, excluding fuel, were up 0.7%, with volume growth strong amid deflation of -2.6%. The number of transactions increased by 3.1% but the number of items per basket slipped 2.8%.

David Stoddart, analyst at Edison Investment Research, said: “We can either take encouragement from the second successive quarter of LFL sales growth or we can reflect on the scale of the effort that has been required to inch forward.”