By Paul Sandle
LONDON (Reuters) - Tesco, Britain's biggest retailer, defied the industry gloom on Thursday, saying improvements in its own-brand ranges helped deliver its best Christmas in nearly a decade.
The supermarket group reported a 2.2 percent rise in same-store sales in its home market in the six weeks to Jan. 5, beating rivals Sainsbury's and Morrisons and helped by deals such as its "Festive Five" vegetable packs, offering staples such as carrots and sprouts for 29 pence.
Analysts had forecast a rise of 1.0 to 1.5 percent.
The increase contrasted with an industry survey showing UK retailers failed to increase Christmas sales for the first time since the depths of the financial crisis, with shoppers worried whether Britain will secure an orderly withdrawal from the European Union in less than three months' time.
"In the UK we delivered significant improvements in our competitive offer and this is reflected in a very strong Christmas performance which was ahead of the market," said Tesco Chief Executive Dave Lewis.
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The company's closest competitors Sainsbury's and Wal-mart's Asda are merging, potentially overtaking Tesco as mainstream supermarkets strive to counter the threat from fast growing discounters Aldi and Lidl.
Lewis said customers had responded to better pricing and quality in Tesco's own-brand products, with 125,000 more shoppers in stores this Christmas than last helping it outperform the market in food, clothing and general merchandise.
Dec. 23 was the busiest Sunday in Tesco's history, he said, and 766,000 customers were served in just one hour at the trading peak, with popular deals including half-priced lamb and beef joints and 25 percent off six bottles of wine.
Shares in Tesco, which is celebrating its centenary this year, topped the FTSE 100 index in early deals. They were up 1.2 percent at 214.4 pence at 1015 GMT.
Number two supermarket chain Sainsbury's missed forecasts with a 1.1 percent fall in third-quarter sales on Wednesday, while fourth-ranked Morrisons reported a 0.6 percent rise in Christmas sales on Tuesday.
However, industry data showed all of Britain's big four grocers, lost market share over Christmas to German-owned Aldi and Lidl.
Lewis said Tesco's strong Christmas - with growth from its "Finest" premium products to new own-brand goods that vie with the discounters - was the result of the recovery plan he initiated after he joined in 2014.
He has lowered Tesco's prices versus all its major rivals, streamlined product ranges and improved quality, while raising store standards and transforming relationships with suppliers.
Analyst Richard Hunter at interactive investor said Tesco's performance was the pick of the bunch.
"The supermarket behemoth has staged a strong recovery over several years, having previously admitted that it had taken its eye off the ball in its core UK market," he said.
"However, Tesco is not yet quite the finished article. Pockets of the business still require attention, margins will remain under pressure given the brutally competitive nature of the sector, let alone the potential threats from the likes of Amazon and a merged Asda and Sainsbury."
Tesco also reported a 0.7 percent rise in UK same-store sales for its third quarter to Nov. 24 - its 12th straight quarter of growth - and said it was confident in its outlook for the full year.
Analysts had forecast quarterly UK like-for-like sales growth of 0.5 to 1.0 percent following 2.5 percent in the second quarter.
For the 2018-19 year, analysts on average expect Tesco to make an operating profit before exceptional items of 2.08 billion pounds ($2.65 billion), up from 1.64 billion in 2017-18.
($1 = 0.7841 pounds)
(Editing by Jason Neely and Mark Potter)