Sainsbury’s has reported a better-than-expected performance in its Christmas quarter and upgraded its sales forecast for the second half.

The supermarket chain, which revealed last week that it had a bid approach for Argos owner Home Retail rejected, said sales at stores open over a year fell 0.4 per cent, excluding fuel, in the 15 weeks to January 9, its fiscal third quarter.

That compared to analysts’ average forecast of a fall of 0.7 per cent and a second quarter decline of 1.1 per cent.

Sainsbury's has shown greater resilience to competition from discounters Aldi and Lidl than its big four rivals - Tesco, Wal-Mart's Asda and Morrisons - but has still endured eight straight quarters of declining underlying sales, hurt by industry deflation, including its own price cuts.

The firm, whose total sales rose 0.8 per cent, excluding fuel over the third quarter, said it had benefited from an increase in the number of transactions its customers were making, and the volume of products bought.

"We have traded well during the festive period in a highly competitive market," said chief executive Mike Coupe.

The supermarket made no mention of its approach for Home Retail in its statement. Under British takeover rules it has until February 2 to make a firm offer for Home Retail or walk away.

Sainsbury’s now expects its like-for-like sales in the second half of its 2015-16 year to be better than the first. Previously it had expected a similar performance.

The group said it had benefited from shoppers trading up to more premium products, such as its “Taste the Difference” range, over the festive period.

Moves to narrow the price gap with discounters, improve product availability and customer service have also found favour with consumers, as did a Christmas advertising campaign featuring Mog the cat.

Industry data published on Tuesday showed Sainsbury’s was the best performer of Britain’s big four grocers over Christmas on a total sales basis.

Reuters