* Q2 net profit 433.3 mln riyals vs 398.2 mln riyals a year earlier
* Q2 sales rise 14.4 pct to 3.29 bln riyals
* Almarai says Q3 demand to increase, partly due to Ramadan (Adds details)
By Matt Smith
DUBAI, July 6 (Reuters) - Saudi Arabia's Almarai, the Gulf's largest dairy company, reported an 8.8 percent increase in second-quarter net profit on Sunday as sales rose.
Almarai made a profit of 433.3 million riyals ($115.5 million) in the three months to June 30, up from 398.2 million riyals in the year-earlier period, according to a statement to Riyadh's bourse.
The firm said second-quarter sales rose 14.4 percent to 3.29 billion riyals from higher sales in core parts of the business.
Almarai's selling, distribution and general expenses all increased in the second quarter because of its expansion "across product categories and geographies" and rising depreciation costs from earlier investments.
This meant Almarai's net profit margin fell to 13.2 percent of sales in the second quarter from 13.9 percent in the corresponding period of 2013.
The firm made a net profit of 706.9 million riyals in the first half of 2014, up from 653.3 million riyals a year earlier.
The company said rising costs had crimped its half-year profit due to a rising wage bill associated with localisation efforts and increasing raw material costs.
Saudi Arabia has introduced some measures in recent years, including quotas and financial penalties, to boost the number of Saudi citizens employed in the kingdom's private sector - which has increased labour costs for companies as locals are often paid higher salaries than expatriates.
However, Almarai said it expects higher demand for its products in the third quarter, partly due to Ramadan, the Muslim holy month of fasting that began in late June.
($1 = 3.7504 Saudi Riyals) (Reporting by Matt Smith; Editing by David French)