Asda vows to win UK price war despite worst quarter ever

* Sales slump in Christmas quarter

* CEO expects gradual improvement in sales

* Firm maintaining profitability (Adds comments by CEO, analyst)

By James Davey

LONDON, Feb 18 (Reuters) - British supermarket chain Asda will emerge the winner of a brutal industry price war, its boss said on Thursday, despite the company reporting its worst ever quarterly sales performance.

Asda, owned by Wal-Mart, reported a 5.8 percent slump in fourth-quarter underlying sales, representing further deterioration of its performance and a sixth straight quarterly decline, hit hard by the loss of shoppers to German discounters Aldi and Lidl as well as industry deflation.

CEO Andy Clarke forecast only a gradual improvement in sales in 2016 but was confident the firm would maintain profitability as it did in 2015.

"In the long run we'll win in this market," he told reporters.

"Market share is important to us ... But what's more important is financial control and stability. That's going to give us an advantage to win in this market."

Though Asda's sales are falling it has not reported the profit declines and asset write-offs suffered by its listed British rivals Tesco (Xetra: 852647 - news) , Sainsbury (Amsterdam: SJ6.AS - news) 's and Morrisons, who have also all sold assets and seen share prices plummet.

A price war waged by the big four supermarket players aimed at recapturing market shares lost to discounters shows no signs of abating. Both Asda and Morrisons have announced further waves of price cuts this year, prompting a response from Aldi.

"We have maintained the strength of our price position against the big grocers at a time when they have significantly altered their operating (profit) margins to support their organisations," said Clarke (Toronto: CKI.TO - news) .

"I would suggest ... In the medium to long term, that's unsustainable."

PRICE GAP

He said over the last two years Asda has narrowed its price disadvantage against the discounters from 23 percent to about 11 percent and maintained its price advantage over the other big three players at about 8 percent.

His aim is to get within 5 percent of the discounters and widen the gap to the other three to 10 percent.

Some analysts say Asda is losing ground to rivals on non-price factors such as product merchandising and product ranges.

"Asda lacks personality and theatre at present. It (Other OTC: ITGL - news) is a very functional and sterile shop," said Shore Capital analyst Clive Black.

Asda's latest sales decline follows a drop of 4.5 percent in the third quarter and 4.7 percent in the second, which Clarke said in August was the company's "nadir".

The 5.8 percent like-for-like sales fall in the 13 weeks to Jan. 1, cemented Asda's position as the worst performer in revenue terms among Britain's big four.

The other three all beat market expectations for Christmas trading. That, along with industry data, had already indicated that Asda was the major sales loser over the festive period.

Clarke said Asda's underperformance was in part because it did not participate in "Black Friday" promotions or matching the Christmas promotions of rivals on beer, wine and spirits.

But he said he had not expected Tesco's performance to improve as much as it did.

Separately on Thursday, Wal-Mart, the world's largest retailer, reported a decline in its quarterly earnings. (Additional reporting by Sarah Young; Editing by David Goodman, Greg Mahlich)