* Underlying sales up 0.5 pct in fourth quarter
* Reported increase below that of Tesco, Sainsbury’s, Morrisons
* Walmart says Asda making progress (Adds detail, background, analyst comment)
By James Davey
LONDON, Feb 20 (Reuters) - Asda, the British supermarket arm of Walmart, underperformed its main rivals over the Christmas quarter, reporting only a small rise in underlying sales despite industry inflation.
The outcome illustrated the challenge facing Asda’s new boss Roger Burnley, who succeeded Walmart veteran Sean Clarke as chief executive at the start of January. Burnley re-joined Asda in 2016 as chief operations officer after a stint at Sainsbury’s .
Parent company Walmart itself reported a lower-than-expected quarterly profit and a sharp drop in online sales growth during the holiday period, prompting a slump in its shares.
Burnley, and his predecessor Clarke, have focused on attempting to re-establish Asda’s competitiveness by cutting prices, improving quality and availability of product ranges and making its stores more attractive. Like industry rivals they have also attacked costs.
Asda, the UK’s third largest supermarket group, said like-for-like sales rose 0.5 percent in last three months of 2017.
Although below a rise of 1.1 percent in the previous quarter it did mark a third straight quarter of underlying sales growth. Prior to that Asda had endured three years of sales falls.
“We know we have more work to do in the UK, however we are encouraged by recent results in key areas of our business,” said Walmart CEO Doug McMillon.
Last month market leader Tesco reported like-for-like sales growth of 1.9 percent in its Christmas trading update, second-ranked Sainsbury’s reported a 1.1 percent rise, while fourth-placed Morrisons’ underlying sales were up 2.8 percent.
However, discounters Aldi and Lidl outperformed all of the big four.
Shares in Tesco, Sainsbury’s and Morrisons were up 0.2, 1.2 and 0.4 percent respectively at 1425 GMT.
Asda was up against weak comparative numbers as fourth quarter 2016 sales had fallen 2.9 percent.
The supermarket also benefited from food price inflation across the industry, which was 3.7 percent in the 12 weeks to Dec. 31, according to market researcher Kantar Worldpanel.
“Last year, we really improved our offer for customers – combining great product innovation with a focus on value and an easy shopping experience,” said Burnley.
He said Asda attracted over 348,000 new customers to its stores in December which meant it was the only one of Britain’s big four grocers to retain its market share in that month.
However, Kantar Worldpanel’s data showed Asda’s market share was 15.3 percent over the longer 12 week period, down 0.2 percentage points year-on-year, indicating it still lost market share to the discounters.
Of Britain’s major players analysts reckon Asda was hurt the most by the rise of the discounters as its traditional price advantage was eroded.
Walmart said last year it was too slow in starting the repositioning of Asda and had not focused enough on using its leverage as a parent.
Bryan Roberts, global insights director at retail specialist tcc global, said Asda was showing “encouraging signs”.
“This is a heartening turnaround - but it’s happening slowly. A focus on re-capturing a year-round family appeal could catalyse its ongoing recovery,” he said. (Editing by Paul Sandle/Keith Weir)