UPDATE 2-Asda Q2 sales surge as Britons seek low prices

(Adds CFO comments, more detail, background)

By Mark Potter

LONDON, Aug 14 (Reuters) - Asda, Britain's second-biggest supermarket group, posted a 6 percent rise in underlying second-quarter sales and said it was taking market share as cash-strapped shoppers flocked to its low price stores.

The firm, owned by U.S. retail goliath Wal-Mart Stores Inc (WMT.N), said on Thursday sales of its budget Smartprice range leapt more than 20 percent in the three months to June 30 and it had also seen a big jump in custom from higher income groups.

"This is a tough economic climate and listening to (the Bank of England) it's about to get worse," Chief Financial Officer Judith McKenna said, referring to the central bank's forecast on Wednesday that economic growth would grind to a halt.

"This Christmas is going to be as tough a Christmas as many of us have seen," she said at a news conference.

McKenna said there were signs across Asda's business of consumers struggling with higher food, fuel and mortgage costs.

Sales of frozen foods were up around 20 percent as shoppers cut back on waste, while there was also a surge in trading in coastal towns as a growing number of Britons holiday at home.

Sales at all stores open at least a year, excluding fuel and adjusted for the timing of Easter, were up from a 5 percent rise in the first quarter. Not including the adjustment for Easter, sales were up 5.5 percent, down from 6.4 percent in the first quarter.

Market leader Tesco (TSCO.L) reported a 3.5 percent rise in like-for-like sales, excluding fuel, for the 13 weeks to May 24.

McKenna said food prices were rising but, within Asda, nowhere near as much as the 13.7 percent recorded in official UK inflation data for July.

Asda's second-quarter same-store growth included a "healthy level of volume growth", but she declined to give a figure for either food inflation or volume growth in the quarter.

MARKET SHARE

McKenna said customers were not trading down across the board, but were focusing on cheaper staples while continuing to buy some luxury items.

Sales of the group's premium Extra Special range, for example, were up over 20 percent in the quarter, while sales of organic foods also remained strong.

McKenna said Asda was growing at about twice the rate of the grocery market and, according to researchers TNS Worldpanel, added 0.6 percentage points of market share to 12.3 percent in the 12 weeks to July 13 versus the same period last year.

This was more than the 0.4 percent added by hard discounters such as Aldi and Lidl, she said.

"We aren't seeing any evidence...that discounters are taking share from Asda," McKenna said.

She said Asda would continue with popular promotions such as selling selected staple goods for 50 pence, but declined to say whether price competition was squeezing profit margins.

Tesco said on Thursday it had saved shoppers 620 million pounds ($1.2 billion) since March and had 18,000 products on promotion this week.

McKenna declined to give a comparable figure, but said Asda was funding promotions by cutting costs.

Almost one in five shoppers now used self-service checkouts, and the firm had slashed packaging and become more efficient in distributing its goods by lorry, she said.

Separately, Wal-Mart posted a 17 percent rise in second-quarter profit and raised its full-year earnings view. [ID:nN14405763].

Wal-Mart, the world's largest retailer, operates about 6,000 stores worldwide including more than 3,000 stores in 13 countries outside the United States and is starting to shift more investment away from its saturated home base.

Its expansion is rivalled by global rivals, France's Carrefour (CARR.PA) and Tesco, which are also seeking access to emerging market shoppers to offset slowing growth at home. (Editing by Dan Lalor and Erica Billingham/Rory Channing)