Sainsbury says growth plans will offset tough market

Britain's third-biggest supermarket group by market share behind Tesco Plc and Wal-Mart's Asda joined the chorus of retailers warning that government steps to reduce its debts, including higher taxes and public spending cuts, would make life harder for shoppers in the months ahead.

"As we enter the second half, we expect the economic environment to remain challenging," Chief Executive Justin King said on Wednesday.

But Mr King added: "We remain confident that our universal customer appeal, combined with our strong space growth momentum, means we are in a good position to perform well in this environment."

Sainsbury, which runs 537 supermarkets and 335 convenience stores, said profit before tax and one-off items rose 8 percent to 332m in the 28 weeks ended October 2.

Sales climbed 7 percent to 11.94 billion and the group said it would raise its interim dividend 7.5 percent to 4.3 pence a share.

Sainsbury is outperforming a sluggish grocery market, helped by its strength in the more affluent south of Britain, a focus on affordable luxury foods and its growth plans.

The group said non-food ranges such as clothing and homewares grew at three times the rate of food in the first half, while online grocery sales were up over 25 percent and convenience store sales surpassed 1 billion pounds.

Some analysts have questioned, however, whether the improvement in sales is translating into better profitability.

Sainsbury's underlying operating margin rose 8 basis points to 3.36 percent, close to an average forecast of 3.4 percent.