J. Sainsbury, Britain's third-largest supermarket group, said its sales rose and gave a relatively upbeat view of consumer spending, bucking the trend of retailers' gloomy predictions.
Sales at Sainsbury's stores open at least a year rose 3.7 percent, excluding fuel, in the third quarter to Dec. 29 and Chief Executive Justin King said on Thursday that trade in the crucial Christmas period was "conspicuously" ahead of internal forecasts.
The headline figures were broadly in line with analysts' expectations and helped to calm investors' concerns after bleak predictions from retail bellwether Marks and Spencer on Wednesday that prompted a retail sector sell off.
"Consumers are tightening their belts but I don't think in any way that spells doom and gloom. I think it just means us retailers have to sharpen our pencils," King told reporters.
Sainsbury's shares rose 4.3 percent to 380.4 pence having lost nearly 10 percent in the previous five days due to intensifying concern among investors that higher mortgage costs and energy prices, and weakening housing markets were skewering spending.
A report in The Times on Monday saying Sainsbury's had missed internal forecasts also hit its share price earlier this week.
Bernstein Research analyst Christopher Hogbin said Sainsbury's update, although only in line with forecasts, "should come as a relief to investors given the recent sharp sell-off of the stock on fears that trading might miss expectations."
Sainsbury's announcement it had achieved its goal of 2.5 billion pounds of additional sales since March 2005 three months ahead of time was "an encouraging sign" for the next stage of its strategy, Hogbin said.
King's remarks chimed with solid trading at Germany's Metro, which met expectations with a 10 percent rise in group sales, supporting forecasts that Europe's supermarket groups will be among the winners of Christmas.
Metro rose 6.7 percent, leading the DJ Stoxx index of European retailers nearly 1 percent higher.
Marks and Spencer sent a chill through the European retail sector on Wednesday when it reported its worst quarterly performance in more than two years and warned the pain for Britain's retailers could extend into 2009.
Numis analyst Jose Marco-Tobares said while Sainsbury pointed out the pressure on consumer budgets, food retail was still one of the most defensive places in the sector.
Sainsbury's decision to accelerate into the non-food business selling toys, electricals, homeware and clothing should also have a positive impact on margins, Marco-Tobares said.
King said the improvements made to Sainsbury's business during its three-year recovery meant it was "well equipped to perform in this challenging environment." He said he remained confident he could deliver its growth plans.
Britain's grocery market showed robust growth in the 12 weeks to Dec. 20, data from TNS Worldpanel showed on Wednesday, in sharp contrast to a slew of weak trading statements from the apparel and specialist goods sectors.
Shares in supermarket leader Tesco rose 1.3 percent and WM Morrison Supermarkets was up 3 percent. Tesco's trading update is due on Jan. 15 and Morrison's on Jan. 22.
Asda, part of Wal-Mart Stores and the second- largest grocer, said on Wednesday it had enjoyed its "best ever Christmas," but did not provide further figures.