A modest rise in underlying sales from Britain's third-biggest supermarket group added to signs that cash-strapped shoppers were prepared to treat themselves, at least on food, over the festive season.
However, Sainsbury's boss Justin King said on Wednesday he saw no improvement in the business environment this year, regardless of an expected boost this summer from events like the Olympic Games in London and Queen Elizabeth's Diamond Jubilee.
We expect the consumer to remain in a very tough place ...
We see 2012 as a continuation of 2011, more of the same, he told reporters on a conference call, adding Britons were likely to curb spending in January and February as they pay their Christmas bills and put money aside for the summer events.
Retailers across Europe are mostly struggling as disposable incomes are squeezed by rising prices, muted wage growth and austerity measures, and as shoppers worry about the impact of the euro zone debt crisis.
Portugal's Jeronimo Martins
The British Retail Consortium said on Tuesday underlying UK retail sales rose a higher-than-expected 2.2 percent in December, though it added the figures were flattered by a weak performance the year before when trading was hit by heavy snow -- and warned that shoppers had been lured by big discounts which could hit retailers' profit margins.
Sainsbury, which lags Wal-Mart's
That beat the average forecast for 0.9 percent growth in a Reuters poll of 17 analysts and was modestly ahead of its performance in the previous quarter.
Shore Capital analyst Clive Black described the performance as excellent relative to peers, but added 1.2 percent growth was by no means stellar.
At 09:25 a.m. BT, Sainsbury's shares were down 0.3 percent at 305 pence, broadly in line with a 0.4 percent drop in the STOXX Europe 600 retail index <.SXRP>.
UK retail sales graphic: http://link.reuters.com/vyv85s
UK grocery market graphic: http://link.reuters.com/juh44s
WORRIES FOR TESCO
Analysts believe Sainsbury's had the strongest December of Britain's top four grocers, based on market research data from Kantar Worldpanel published on Tuesday.
No.4 chain Wm Morrison
Citi analysts warned on Wednesday the drop in underlying UK sales at Tesco could be as much as 3 percent.
Sainsbury said its non-food sales grew faster than grocery sales, helped by a clothing range backed by celebrity fashion consultant Gok Wan. Convenience store sales jumped almost 25 percent, while online grocery sales climbed almost 20 percent.
Sainsbury also said store extensions added about 1 percent to its like-for-like sales growth, as in previous quarters.
Sales of its premium Taste the Difference range jumped 10 percent. However, sales of its lower-priced Basics ranges also rose strongly, as did cooking ingredients, suggesting shoppers balanced Christmas treats with economies elsewhere.
Finance chief John Rogers said he remained comfortable with analysts' full-year consensus profit forecast of 702 million pounds, suggesting the rise in sales was not driven by a squeeze on profit margins.
That was not the case elsewhere. British home shopping firm N Brown
Meanwhile, fashion retailer SuperGroup
Other groups, particularly those more directly exposed to competition from online retailers and ever-expanding supermarkets, are having a much tougher time, with major chains such as HMV
Analysts expect Home Retail
(Editing by Will Waterman and David Holmes)