May 1, 2018 / 11:40 PM / in a year

UPDATE 2-Australia's Woolworths Q3 sales race past Coles

* Woolworths’ 4.4 pct same-store sales growth beats Coles’ 0.9 pct

* Woolworths shares up 1.4 pct to highest since Aug. 2015

* Expects fruit and vegetables deflation to persist in Q4 (Recasts throughout, adds share movement)

By Chris Thomas

May 2 (Reuters) - Australian grocery giant Woolworths Group Ltd on Wednesday reported a 4.4 percent rise in third-quarter same-store food sales, beating rival Coles’ performance during the same period.

Wesfarmers-owned Coles posted same-store sales growth of 0.9 percent last week. Wesfarmers, a retail conglomerate, plans to spin off Coles to focus on faster-growing businesses.

Woolworths’ Australian food sales rose 4.7 percent to A$9.57 billion ($7.2 billion) for the 13 weeks to April 1, while same-store sales after adjusting for the Easter holiday season were up 4 percent.

Shares of Woolworths rose as much as 1.6 percent to their highest since Aug. 2015, while the broader index was up 0.6 percent.

Woolworths has been cutting shelf prices to lure back shoppers from Coles and discounters like Germany’s ALDI Inc since closing a loss-making hardware joint venture which had forced it to charge more to maintain margins.

The tactic has shown signs of working. In February, the Sydney-based supermarket chain said first-half underlying profit rose nearly a sixth.

Woolworths and Coles are seen as barometers of the overall Australian economy because they collect two-thirds of grocery dollars spent in the country.

Australia’s retail sales have beaten forecasts since late 2017, although analysts are uncertain the recovery will last as sluggish wages and stagnant household incomes sap spending power.

Woolworths’ total sales for the quarter from continuing operations were A$14.24 billion, up from A$13.66 billion a year earlier.

Meanwhile, average prices fell 1.3 percent, the company said, with fruit and vegetables deflation persisting at 5.4 percent.

Fruit and vegetables deflation is expected to remain high in the fourth quarter as the category cycles the inflationary impact of Cyclone Debbie in the prior year, Woolworths said.

$1 = 1.3342 Australian dollars Reporting by Chris Thomas in Bengaluru; Editing by Stephen Coates

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