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UPDATE 2-Sainsbury sales growth slows despite record Christmas

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* Q3 like-for-like sales, ex fuel, up 0.9 pct, as expected

* Outcome driven by growth of online, convenience sales

* Says positioned to perform well in Q4

* Says won't be hurt by any Tesco revival

* Sainsbury shares down 3 pct

By James Davey

LONDON, Jan 9 (Reuters) - Despite a strong performance online and at convenience stores, sales growth at J Sainsbury , Britain's third-largest supermarket chain, slowed to a trickle in the last quarter of 2012, outpaced by price inflation.

Though the company trumpeted record Christmas sales and a 32nd consecutive quarter of underlying sales growth, the 0.9 percent rise in revenue excluding fuel and new stores was down from 1.9 percent in the previous quarter, though in line with analysts' forecasts.

"We think when the reporting season is over ... that we'll emerge clearly as the winner," Chief Executive Justin King said on Wednesday.

"We're growing market share," he said.

Industry data a day earlier showed Sainsbury's did post the highest sales growth of Britain's "big four" grocers in the 12 weeks to Dec. 23 and was the only one to raise its market share.

But with the latest consumer price inflation figures running at 2.64 percent and food price inflation at 4.1 percent, according to the British Retail Consortium, that still leaves Sainsbury's with negative real growth, as consumers worried by job security and a squeeze on incomes spend more carefully.

Data showed market leader Tesco's sales growth was the second highest among the big four and also highlighted much stronger growth at the discount end of the market, led by Aldi and Lidl, and at the premium end at John Lewis's Waitrose.

Some analysts say Sainsbury's is vulnerable to a recovery at Tesco, which is investing 1 billion pounds ($1.6 billion) in a plan to revive its fortunes after a dismal Christmas in 2011 led to its first profit warning in 20 years.

"We suspect Sainsbury will struggle to outperform in 2013 as Tesco continues its fight back and there is some margin vulnerability as momentum slows," said Seymour Pierce analyst Kate Calvert.

No. 4 chain Wm Morrison on Monday posted a 2.5 percent fall in like-for-like sales excluding fuel for the six weeks to Dec. 30, while Tesco is tipped to report on Thursday underlying growth of 0.5-1.5 percent in its home market for the six weeks to Jan. 5, partly reflecting easier comparatives with last year. Second-ranked Asda, owned by U.S. giant Wal-Mart , is not due to report until February.

TOUGH TIMES TO PERSIST

Sainsbury said it was well positioned for the next quarter, though it expected a tough economic backdrop to persist, with shoppers looking to re-balance budgets after Christmas.

Its online sales grew at over 15 percent, and its convenience stores managed gains of more than 17 percent, accounting for two thirds of its like-for-like growth.

Sainsbury's has also benefited from the success of its "Brand Match" pricing initiative, a big push into non-food areas, and a boost to its profile from its sponsorship of the London Paralympic Games.

In November, however, it had guided for second-half like-for-like sales growth similar to the 1.7 percent made in the first half.

"We expect consensus second half like-for-like (sales growth) to edge down towards 1 percent," said analysts at Credit Suisse.

King attributed the slowdown to tough comparative numbers after a strong Christmas in 2011, a lower contribution from store extensions, and higher sales of own-brand products, which are cheaper than branded goods and grew at three times the rate of brands in the quarter.

"One of the reasons I suspect that we've seen a switch to own label is that it's a great way for consumers to dial out inflation," said CEO King.

Responding to persistent speculation that he may leave Sainsbury's this year, he said: "I see myself here for the long term."

Shares in Sainsbury's, up 13.5 percent over the last year, were down 3 percent at 329.8 pence at 1132 GMT, valuing the business at about 6.2 billion pounds. Tesco shares were down 1 percent.

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