DUBAI - Saudi Arabia's Almarai, the Gulf's largest dairy company, on Sunday reported an 8.5% drop in third-quarter net profit, due to a rise in selling and distribution expenses, and lower sales in Bahrain.

Almarai's net profit after zakat and tax was 581.2 million riyals ($154.95 million) down from 635 million riyals in the same period a year earlier.

Sales rose to 3.57 billion riyals versus 3.32 billion riyals a year ago.

Consumer goods companies and retailers in Saudi Arabia have been hit by a downturn in consumer spending in response to the introduction of a value-added tax (VAT), higher energy prices and a fragile labour market.

It said sales in Bahrain declined due to implementation of VAT earlier this year.

Almarai and other Saudi exporters have also been affected by the loss of the Qatari market as a result of a regional diplomatic rift between Qatar and Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. ($1 = 3.7509 riyals)

(Reporting by Tuqa Khalid) ((Tuqa.Khalid@thomsonreuters.com; +971521047568;))