UPDATE 1-Sainsbury's beats second quarter sales forecasts

Wed Oct 3, 2012 3:04am EDT

* Q2 like for like sales up 1.9 pct ex fuel

* Q2 total sales up 4.3 pct (4.4 per cent ex fuel

* Expects challenging economic backdrop to persist

* Says positioned to perform well in Christmas period

By Neil Maidment

LONDON, Oct 3 (Reuters) - J Sainsbury, Britain's third-biggest supermarket group, posted better than expected quarterly sales growth, boosted by strong take-up of its own label range and the roll-out of its convenience stores.

Sainsbury, which trails industry leader Tesco and Wal-Mart's Asda by market share, said on Wednesday sales at stores open over a year, excluding fuel, rose 1.9 percent in the 16 weeks to Sept. 29, its fiscal second quarter.

Many retailers across Europe are struggling as consumers' disposable incomes have been squeezed by rising prices, muted wages growth and government austerity measures, and confidence has been sapped by the euro zone debt crisis.

The results at Sainsbury, which enjoyed a healthy profile boost from its sponsorship of the London Paralympic Games, compared with Tesco's 0.1 percent sales uptick in its home market after 18 months of decline.

Sainsbury's outperformance over rivals has been helped by strong growth online and in smaller convenience stores where it is attracting thrifty customers looking for top-up shops rather than bulk buys.

Its sales growth compares with analysts' average forecast of 1.4 percent, a rise of the same magnitude in the firm's first quarter, and represents a 31st consecutive quarter of underlying sales growth.

"We expect the challenging economic backdrop to persist, but... we are positioned to perform well coming into the important Christmas period," Chief Executive Justin King said.

Total sales in the period were up 4.3 percent, and 4.4 percent excluding fuel.

The group said its online business grew over 20 percent year-on-year, while it opened 49 convenience stores in the first half of the year, with expansion continuing at a rate up to two new store openings per week.

The company also benefited from the success of its "Brand Match" pricing promotion, market share gains in general merchandise and own-label food ranges, which Sainsbury said was increasing at a faster penetration rate than any of its rivals.

Non-food increased its pace of growth to around three times that of food, it added.

Last month, Sainsbury commercial director Mike Coupe told Reuters he hoped the feel good factor engendered by the success of the London Olympic and Paralympic Games could mark a turning point for retail demand in a nation enduring a double dip recession.

Sainsbury shares are up 26 percent on a year ago, recently buoyed by the return of speculation regarding a possible renewed bid attempt from its 26-percent Qatari shareholder.

The stock closed Tuesday at 346.8 pence, valuing the business at around 6.5 billion pounds.

Last month Britain's No. 4 grocer Wm Morrison Supermarkets posted first-half earnings towards the top end of forecasts but said it had eased back on its investment drive, cautioning that high fuel prices and government austerity measures were likely to weigh on consumer spending well into next year.

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