* H1 underlying profit 332 million stg vs f'cast 323-343 mln
* Relaunched premium range sees double-digit sales growth
* Nudges up 2011-12 new selling space target
* Dividend up 7.5 percent to 4.3 pence a share
* Shares down 1.9 percent, handing back some recent gains
(Adds CEO, analyst comments, shares, detail, link to graphic)
By Mark Potter
LONDON, Nov 10 (Reuters) - British grocer J Sainsbury Plc sees strong sales of its relaunched premium food range and an acceleration its expansion plans helping it cope with a tough economic outlook.
Chief Executive Justin King said on Wednesday the group's top-end "Taste the Difference" range had seen a mid-teens percentage rise in sales since its September relaunch, fronted by celebrity chef Jamie Oliver, led by demand for restaurant-style "Bistro" ready meals.
"People are staying in rather than going out to eat," he told reporters on a conference call. "People are watching the X Factor (and other TV shows) ... but they're eating well whilst they're doing it."
Britain's retailers are worried that the government's ambitious plans to cut borrowing by raising taxes and slashing public spending could hit consumers hard in the months ahead.
However Sainsbury, Britain's third-biggest supermarket group by sales behind market leader Tesco and Asda (part of Wal-Mart Stores Inc) said it was confident of coping thanks to its expansion plans.
"We're in a good position to continue to perform well, notwithstanding that tough environment," King told reporters on a conference call, after the company reported first-half profit which met analysts' forecasts.
Sainsbury is opening new stores outside its heartlands in the south of England, as well as expanding online and into convenience shopping and non-food ranges such as clothing.
The strategy appears to be bearing fruit. Data from market researcher Kantar Worldpanel on Tuesday showed Sainsbury's sales growth outstripping its major rivals.
King said the momentum gave the group confidence to nudge up its target for selling space in 2011/12 to 1.5 million square feet from 1.25 million previously.
PRICED IN However, some analysts believe the good news is already priced into Sainsbury's shares, which have outperformed the STOXX Europe 600 retail index by 11 percent this year.
"While we have confidence in Sainsbury's ability to keep on its growth path, we believe that its valuation is full, hence our 'hold' recommendation," said RBS's Justin Scarborough.
Some are also concerned that big expansion plans by all Britain's major grocers could hit industry returns.
At 0900 GMT, Sainsbury's shares were down 1.9 percent at 370.1 pence in a European retail sector down 0.3 percent.
Sainsbury's, with 547 supermarkets and 343 convenience stores, said profit before tax and one-off items rose 8 percent to 332 million pounds ($536 million) in the 28 weeks ended Oct. 2, against an average forecast of 334 million in a Reuters poll of 12 analysts.
Sales climbed 7 percent to 11.94 billion pounds and the interim dividend was up 7.5 percent to 4.3 pence a share.
The group said non-food ranges such as clothing and homewares grew at three times the rate of food, while online grocery sales were up over 25 percent and convenience store sales surpassed 1 billion pounds.
Some analysts, however, noted sales outperformance is not translating into better profitability. "It's the same old story today: good sales growth but disappointing profit growth," said Arden Partners' Nick Bubb.
Sainsbury said its underlying operating margin rose 8 basis points to 3.36 percent, although the increase was 15 percent stripping out the impact of higher fuel prices.
Finance Director John Rogers said that was better than company guidance for an outturn in the lower half of its medium-term range for a 10 to 20-basis-point improvement.
He was also comfortable with analysts' full-year profit forecasts of about 660 million pounds and said this would equate to a tick up in the margin improvement to between 17 and 18 basis points. (Editing by David Holmes) ($1=.6189 Pound)