UPDATE 2-Sainsbury warns on UK consumer spending after "best Christmas ever"
* Q3 like-for-like sales, ex fuel, up 0.2 pct
* Outcome is 36th straight quarter of like-for-like sales growth
* Sees Q4 outcome similar to Q3
* Cuts like-for-like sales year growth forecast to "just below 1 pct"
* Shares fall up to 2.7 pct
By James Davey
LONDON, Jan 8 (Reuters) - British grocer J Sainsbury reported its "best Christmas ever" on Wednesday but warned that consumers were likely to tighten their belts in the early part of 2014 and cut its sales growth forecast accordingly.
"We expect customers to spend cautiously in the few months following Christmas, in an attempt to rebalance the household finances," Chief Executive Justin King said on Wednesday.
That caution and a revision to its sales forecast for the full year sent the share price down by up to 2.7 percent to 359 pence, trimming a gain of 11 percent over the last year.
Though there are signs of an improving economy Britain's major food retailers are finding the going tough as consumers' disposable incomes remain under pressure from wage rises not keeping up with inflation.
Analysts reckon all of the UK's "big four" grocers - Tesco , Wal-Mart's Asda, Sainsbury's and Morrisons - 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.
"It's the consumer back-drop that really makes it tough. If people haven't got the money to spend, no matter how hard we try competitively as an industry, it won't get spent," King told reporters.
Sainsbury's which trails market leader Tesco and is battling with Asda to be the UK's second-biggest grocer, said sales at stores that have been open over a year rose 0.2 percent, excluding fuel, in the 14 weeks to Jan. 4, its fiscal third quarter, with total sales up 2.7 percent.
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 like-for-like growth of 2 percent.
Chief Financial Officer John Rogers said he expected a similar outcome in the fourth quarter and revised like-for-like sales growth expectations for the full current year to "just below 1 percent" from 1-1.5 percent previously.
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.
The "big four" are also being squeezed on market share between discounters Aldi and Lidl and up-market grocers Waitrose and Marks & Spencer.
Waitrose reported on Wednesday a 3.1 percent rise in like-for-like sales for the five weeks to Dec. 31, while the Co-operative Group posted a 1 percent increase in the Christmas quarter.
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. Morrisons is due to update on Jan. 20.
"The competitive heat in 2014 can be expected to go up a gear as the hard discounters in particular are given less of a 'free-run' by what we deem to have been collectively sleep-walking and somewhat complacent and promotionally intoxicated superstore operators," said Shore Capital analyst Clive Black.
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. That meant like-for-like sales in its core stores were down.
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