UPDATE 1-Sainsbury posts small rise in Christmas sales

Wed Jan 8, 2014 2:40am EST

LONDON Jan 8 (Reuters) - British grocer J Sainsbury eked out a tiny rise in underlying sales in its Christmas quarter, with its rate of growth slowing significantly in a tough overall market.

The group, which trails market leader Tesco and is battling with Wal-Mart Stores' Asda to be the UK's No. 2 grocer, said on Wednesday sales at stores open over a year rose 0.2 percent, excluding fuel, in the 14 weeks to Jan. 4, its fiscal third quarter.

Though that was ahead of analysts' forecasts which ranged from flat to down 1 percent and represented a 36th consecutive quarter of underlying sales growth, it was a slowdown from second quarter growth of 2.0 percent.

Sainsbury's total third quarter sales rose 2.7 percent, excluding fuel, and the firm heralded its "best Christmas ever".

Britain's major grocers are finding the going tough, despite their focus on essential goods, as consumers' disposable incomes remain under pressure from wage rises not keeping up with inflation.

Analysts reckon all of the UK's so called "big four" grocers lost market share and saw like-for-like sales volumes decline in the run-up to Christmas, reflecting a subdued overall market and increased promotional activity.

They are also being by squeezed between hard discounters Aldi and Lidl and upmarket grocers Waitrose and Marks & Spencer.

Sainsbury's Chief Executive Justin King said the quarter was characterised by a "very tough sales environment" throughout October and November, but with record numbers of customers and strong sales in the key period over Christmas.

"As with last year, we expect customers to spend cautiously in the few months following Christmas, in an attempt to rebalance the household finances," he said.

Aldi and Lidl both said on Tuesday they enjoyed record trading at Christmas. Tesco updates on Thursday and is forecast to report a fall in UK sales at stores open over a year, excluding fuel and VAT sales tax, of 0.5-2.5 percent for the six weeks to Jan. 4.

Asda said on Monday it saw a good performance at Christmas both in store and online but will not release figures until Feb. 20. No. 4 player Morrisons will update on Jan. 20.

The Co-operative group said on Wednesday that its total food sales over the 13 weeks to Jan. 4 were flat.

Sainsbury's strategy is focused on own-brand products and investing in online and local convenience store channels.

In its third quarter online grocery sales rose over 10 percent, while convenience sales were up nearly 18 percent.

Shares in Sainsbury's, up 11.2 percent over the last year, closed Tuesday at 368.9 pence, valuing the firm at 7.02 billion pounds ($11.5billion)