British retailer Woolworths Plc reported a deterioration in underlying sales at its high-street shops but said profit margins had improved as it managed stock more effectively.

Woolworths, battling cut-price competition from supermarkets and online retailers, said on Wednesday that like-for-like sales at its high-street stores fell 0.6% in the first 17 weeks of its financial year. This was down from the 0.8% rise reported after the first seven weeks.

Woolworths, which runs around 800 high-street shops, said the deterioration was due to strong comparative sales in the same period of last year, when it cut prices to clear stock.

"With our improved stock quality, such activity was not required this year. As a consequence, the gross margin rate in recent weeks has been substantially ahead of the prior year," it said in a trading update, adding it continued to expect full-year gross margins to improve by at least 100 basis points.

The firm said it approached the second half of its financial year with "a degree of caution", with rising interest rates creating a challenging backdrop for consumer spending.

It said total group sales were up 11.4% in the 17 weeks to June 2.

Woolworths shares closed at 27-3/4 pence on Tuesday, valuing the 100-year-old group at £405 million ($807 million).

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