News: COL UPDATE 2-Australia's Coles posts subdued Q1 supermarket same-store sales, sees...

• Coles Q1 same-store sales A$7.7 bln vs A$7.6bln previously
• Company says sales momentum has increased
• Shares up 2.5%

(Recasts and adds fund manager quote)

Australian supermarket giant Coles Group (COL) booked much slower quarterly sales growth as a rival's toy giveaways found favour with shoppers, but it said sales were picking up after it refocused its marketing strategies.

Larger rival Woolworths Group Ltd (WOW) has run a hugely popular campaign giving away toys based on characters from the Disney film "Lion King", known as "Ooshies".

In the face of that competition, Coles has been cutting back its reliance on free toys and working on other offerings to woo shoppers like pre-packaged meals.

"We're trying to reduce promotional intensity and promote the everyday value," Coles CEO Steven Cain said on a call with analysts.

Its statement that sales were improving lifted Coles shares 2.5% by mid-session compared to a flat overall market.

"It just tells you that they have a little bit of momentum behind them," said Sean Sequeira, chief investment officer at Australian Eagle Asset Management. "Hopefully they can continue this improving trend."

The country's second-largest grocery chain said same-store supermarket sales grew just 0.1% for the three months to end-September, compared to 5.1% for the same period last year.

The first-quarter result was in line with its guidance. Coles's supermarkets business posted sales of A$7.7 billion ($5.3 billion) in the 13 weeks ended Sept. 29, slightly higher than the A$7.6 billion it earned a year earlier.

Total group sales, which includes supermarkets, liquor, petrol and convenience stores, rose 1.8% to A$8.70 billion.

The company did not disclose profit figures. Woolworths is expected to report first-quarter results on Wednesday. ($1 = 1.4622 Australian dollars)