There's been an overall improvement in performance, but against an easier than expected background for the retail sector

Rowan Morgan, retail analyst

The rise came despite a �500m store refurbishment programme which left many shops remaining closed for long periods, the firm said.

Sainsbury's has also invested heavily in a revamped online sales operation.

Sir Peter Davis, chief executive since early last year, described the company's performance as "encouraging."

Sales were 6% higher over the period, on a like-for-like basis.

Earnings disappoint markets

But the earnings figure was at the lower end of analysts' expectations, with most predicting that profits would fall between �310m and �332m.

Sainsbury shares fell below 382p in early trade before recovering to close 385.75p, down 1.25p, on the day.

"There's been an overall improvement in performance, but against an easier than expected background for the retail sector as a whole," said Rowan Morgan, retail analyst at stockbrokers Teather and Greenwood.

The supermarket giant, formerly the UK's largest retailer, was overtaken in 1995 by arch-rival Tesco.

It now also faces strong competition for second place from low-cost supermarket chain Asda, owned by Wal-Mart of the US.

Analysts blame Sainsbury's decline on a failure to offer customers new products and a reluctance to update its store designs.

Sir Peter last year launched a three-year recovery plan aimed at restoring the supermarket to the number one position.

Cost-cutting plans on track

Analysts had feared that the company's expensive store refurbishment programme would jeopardise a separate commitment to shave �150m in costs this year, but Sir Peter stressed on Wednesday that the cost cuts will be achieved.

He also defended the company's recent investment programme, saying that sales at the newly-refitted stores are up by 10%, while online sales for the April to October period rose to �29m, 80% up on the previous six months.

"I don't think any of us would this time last year have thought that in only a year we could have said that sales are running at a record level and profits are back up again," he said.

The company plans to match its rivals' aggressive price-cutting plans during the peak Christmas trading period, Sir Peter said.