Sainsbury's first half profit hit by falling prices

British supermarket Sainsbury's reported an 18% fall in first half profit, hurt by food deflation, including its own price cuts.

The firm reported a profit before tax and one off items of 308 million pounds ($467 million) for the 28 weeks to Sept. 26, its lowest first half profit for six years and down from 375 million pounds in the same period last year.

However, it was ahead of analysts' average forecast of 293 million.

A year ago Sainsbury's Chief Executive Mike Coupe set out a strategy to stem the flow of shoppers to discounters Aldi and Lidl with price cuts and improvements to product quality and availability and customer service, financed by cost savings and dividend reductions.

Though profits are falling the plan is showing some success, with Sainsbury's demonstrating greater resilience to the discounters and changing shopping habits than its "big four" British rivals - market leader Tesco, Wal-Mart's Asda and Morrisons.

In September, Sainsbury's reported better-than-expected second quarter sales and raised its profit expectations for the full 2015-16 year, sparking a 15% jump in its shares.

However, the firm's full-year profit is still expected to be sharply down on the previous year.

Prior to Wednesday's update, analysts were on average forecasting a 2015-16 pretax profit of 573 million pounds, down from 681 million pounds made in 2014-15.

"The grocery retail marketplace remains challenging," said Coupe. "I am confident we are making progress and we are looking forward to a successful Christmas."