Shares in J Sainsbury and Marks and Spencer opened sharply lower this morning over worries that they have both missed sales and profits targets. Both will update investors later this week with their key Christmas performances.

The Times reported this morning that Sainsbury's, Britain’s third-biggest supermarket chain, is understood to have missed internal sales and profit targets in the crucial run-up to Christmas.

The Sunday Times reported yesterday that M&S has had its worst Christmas for two years.

Sainsbury's shares fell as much as 6.2 per cent, or 25.25p, to 380.25p in early trading and M&S dropped 3.3 per cent, or 17p, to 501p.

More than £4 billion was wiped from the value of retail shares last week after stark profit warnings from DSG International and Land of Leather and a bleak sales forecast from Simon Wolfson, the chief executive of Next.

Industry sources say that Sainsbury's, the subject of two failed takeover bids last year, was forced into heavy discounts of unsold produce amid fierce competition.

There is also speculation that this week Marks & Spencer may reveal its worst Christmas trading for two years with a fall in like-for-like sales.

Sainsbury’s is due to report a trading update this Thursday, when it is still expected to meet the City’s forecast of 3.6 per cent like-for-like sales growth for the final three months of 2007. Internal targets are typically more stretching than external ones.

However, analysts believe that the Christmas performance shows that Sainsbury’s is coming under mounting pressure from its rivals — in particular a resurgent Wm Morrison.

Greg Lawless, retail analyst for Blue Oar Securities, said: “The alarm bells are ringing. Our sources suggest that Sainsbury’s has underperformed the market this Christmas and has missed internal and profit targets. Morrisons was the winner. We believe that Morrisons is winning customers from Sainsbury’s, particularly in the South.”

Marks & Spencer is expected to report a drop in like-for-like sales of up to 2 per cent when it reports Christmas trading on Wednesday, given the slump across the clothing sector.

Any significant downturn threatens to ruin Marks & Spencer’s hopes of generating annual profits of more than £1 billion for the first time since 1998.

Analysts at Citigroup have reduced their forecasts for profits in the year to March 2008 to £1.05 billion, but could be forced to cut the target again.

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