Sainsbury's (JSAIY)  revealed better-than-expected third-quarter results Wednesday even as its CEO cautioned that the impact of a Brexit-weakened pound on Britain's second-largest supermarket is still unknown.

Sainsbury's shares surged 5.56% to the top of the FTSE 100 leaderboard, changing hands at 273.2 pence by 9:45 a.m. GMT and extending its 52-week advance to 10%. The FTSE 350 Food and Drug Retailer Index was up 0.51% at 3,209.02.

Sainsbury's, which completed its acquisition of Argos-owner Home Retail last year, said total sales excluding fuel were up 0.8% for the 15 weeks to Jan. 7 and like-for-like retail sales were up 0.1%. This was ahead of analysts' consensus forecast of a fall of 0.8% and a second-quarter decline of 1.1%.

Online grocery sales grew by 9% in the quarter, with sales through its various websites making up 18% of total group sales in the quarter.

While the market has hailed this as good news, the U.K.'s No. 2 supermarket could be in for a challenging year.

"The supermarket business failed to generate any sales growth on its own. However against a backdrop of food deflation, flat sales are a pyrrhic victory for the supermarket, and represent an improvement on performance so far this financial year," Hargreaves Lansdown senior analyst Laith Khalaf said in a statement.

Industry data from Kantar Worldpanel released Tuesday showed that Sainsbury's was the only London-listed Big Four supermarket to see sales fall in the 12 weeks to Jan. 1. Sales were down 0.1% to £4.6 billion, compared with Tesco (TSCDY) and Morrisons (MRWSY) which saw sales up 1.3% and 1.2% respectively.

Sainsbury's also saw its market share fall to 16.7% from 17%. The supermarket's CEO warned that 2017 could be challenging.

"The market remains very competitive and the impact of the devaluation of sterling remains uncertain," CEO Mike Coupe said in a statement. "However, we are well placed to navigate the external environment and remain focused on delivering our strategy."

Competition within the grocery market remains fierce. On Tuesday, Morrisons, the U.K.'s No. 4 grocer, reported stellar Christmas trading results with same-store sales increasing 2.9%. Analysts were expecting a growth rate of 1%, according to consensus estimates compiled by FactSet.

This was the supermarket's strongest performance for seven years, as its turnaround plan takes hold, putting pressure on Sainsbury's.

Morrisons has tied up with Amazon (AMZN) to offer faster online delivery, which could also put pressure on Sainsbury's online offering.

"Looking forward, 2017 promises to be a challenging year for the supermarkets, thanks to the falling pound, as they have limited scope to pass on the higher cost of imported food to customers in such a competitive environment. This currency crunch is likely to put pressure on margins and profits," Khalaf said.

The high for Sainsbury's might be short-lived as Tesco delivers a trading update tomorrow.

Tesco shares were down 0.75% at 211.40 pence at 9:45 a.m. GMT and Morrisons stock had gained 1.42% to change hands at 249.50 pence.

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