Sainsbury sales up 3.4 percent

By Mark Potter

LONDON (Reuters) - J Sainsbury, Britain's third-biggest supermarket group, reported a 3.4 percent rise in same store first-quarter sales, towards the bottom end of analysts' forecasts and lagging rivals.

Sales were boosted by food price inflation of over 3 percent and Chief Financial Officer Darren Shapland told reporters there was only a marginal increase in volumes in the quarter.

"Sainsbury's update shows how competitive the environment is out there, with consumers having less money in their pockets due to higher mortgage payments, higher taxes and higher prices at the pump," said Barclays strategist Henk Potts.

Chief Executive Justin King said on Wednesday the firm was responding to more price-conscious shoppers with its "Feed your Family for a Fiver" campaign and by extending its "basics" range, and its full-year profit expectations were unchanged.

But Sainsbury shares fell as much as 4.5 percent to 321 pence as some analysts expressed concern the firm was starting to lose ground to rivals with a bigger focus on discounting.

"Although the figures were up against difficult comparatives, they are, in our view, disappointing and provide evidence that consumers are trading down in format, moving to the more value orientated retailers," said Seymour Pierce analyst Freddie George.

Sainsbury, which runs over 500 supermarkets and 300 convenience stores, said sales at shops open more than a year rose 3.4 percent, excluding fuel, in the 12 weeks to June 14.

Forecasts had ranged from 3.2-5.0 percent, with an average of 3.8 percent, according to a Reuters poll of nine analysts.