Sainsbury's sales lag rivals

J Sainsbury, the country's third-biggest supermarket group, lagged rivals with a 3.4 percent rise in first-quarter underlying sales, but said its expectations for the full year remained unchanged.

Sainsbury, which runs over 500 supermarkets and more than 300 convenience stores, said on Wednesday it had responded to a tougher trading environment with its "Feed your Family for a Fiver" campaign and by extending its "basics" range.

Sales at shops open more than a year rose 3.4 percent, excluding fuel sales, 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.

"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.

Traders said Sainsbury shares were set to open as much as 1.2 percent lower after closing at 336 pence on Tuesday, which valued the business at about 5.9 billion pounds.

Sainsbury's first-quarter performance was the weakest of the recent sales numbers from Britain's top four grocers.

Market leader Tesco reported a 3.5 percent rise in comparable sales for the 13 weeks to May 24. Number two Asda, owned by U.S. giant Wal-Mart, delivered a 6.4 percent rise for the three months to March 31 and number four Wm Morrison a 7 percent increase for the 13 weeks to May 4.

Sainsbury's sales growth compares with a 4.1 percent rise in the fourth quarter and a 5.1 percent increase in the first quarter of its last financial year.

"Whilst we anticipate that the environment will remain challenging, we operate from a strong financial position and our expectations for the full year remain unchanged," Chief Executive Justin King said in a statement.

Sainsbury is currently expected to make profit before tax and one-off items of 556 million pounds in the year to March 2009, according to the median forecast of 21 analysts polled by Reuters Estimates.

Sainsbury is 25 percent owned by a Qatari investment fund, which dropped plans for a 600-pence-a-share bid in November.

Its shares have underperformed the DJ Stoxx European retail index by about 5 percent this year.