Buffett favourite Tesco dives 14% on profit warning

Warren Buffett's retail favourite Tesco has seen its shares plunge 14.2% following a profit warning today.

Shares fell to 329.94p in early trading as its chief executive Philip Clarke warned profits for the year would be around the low end of the current consensus range following the group's worst Christmas sales for decades.

Veteran investor Warren Buffett upped his stake in the retailer by £120m in September, taking his total stake to 3.64%.

Meanwhile Invesco Perpetual's £8.6bn Income fund, run by Neil Woodford, was the fourth largest investor in Tesco as at March 2011, according to Thomson Reuters. The stock is not in his top 10 holdings, however, and data shows he has been selling down his stake.

In December Woodford warned Tesco could be vulnerable to a slowdown in consumer spending, as one in every eight pounds in the UK is spent at the supermarket, although he added it is showing strong growth overseas.

F&C's Phil Doel had been another backer of Tesco, with a 3.92% position in his £191m F&C UK Equity Income fund as at the end of November. However, the manager said this morning he has sold down his stake since then, and no longer has a material position in the supermarket giant.

On the fixed income side, Fidelity's Ian Spreadbury has previously also been a buyer of the retailer.

The underlying sales for Tesco in the six weeks to 7 January fell 2.3%, more than analyst forecasts of a 0.8% drop, during a "disappointing" trading period, said Clarke.

The supermarket launched a high profile campaign called the Big Price Drop in September as market share had begun to decline, but the promotion failed to draw in the customers over the holidays.

Although clothing and electrical did well, as did international franchises, like-for-like sales fell, with Clarke blaming the cold weather experienced in some parts of the country, according to the Guardian.

Meanwhile, Sainsbury's said like-for-like sales were up 1.2% in the 14 weeks to 7 January. Sales of its Taste the Difference range were up 10%, while its Basics range also performed well.

Kantar Worldpanel data for December showed Sainsbury's market share at 16.7%, its highest since 2003.

Shares in Sainsbury's were also in negative territory falling 6.7%  to 281.3p.

Updated at 09.48.