Home Retail Q2 sales top hopes

"Combined with exceptionally good cost management, this means we now expect group benchmark profit before tax for the first-half to be broadly in line with last year's 121 million pounds ($200.2 million)," said chief executive Terry Duddy.

Like-for-like sales at Argos, the group's town centre catalogue-based retailer, fell 1.4 percent over the 13 weeks to Aug. 29, while underlying sales at home improvements retailer Homebase increased 1.6 percent.

Gross margin was down by 125 basis points at Argos and down 400 basis points at Homebase.

Analysts were expecting like-for-like sales to fall 1.6 percent at Argos and fall 2.5 percent at Homebase, with gross margin down 1.35 percentage points at Argos and down 2.20 percentage points at Homebase, according to a poll of analysts provided by the company.

Shares in Home Retail have increased in value by 32 percent over the last three months on recovery hopes, outperforming the DJ Stoxx European retail index .SXRP by about 12 percent.

The stock closed Wednesday at 328 pence, valuing the business at 2.88 billion pounds.

(Reporting by James Davey, Editing by Mark Potter)