Dixons Retail , Europe's second-biggest electrical goods retailer, said it outperformed British rivals Argos and Comet over Christmas without the need to drop its prices.

Shares in Dixons, home to the Currys and PC World chains in Britain, rose over 13 percent on Tuesday after the firm said its gross profit margins were flat year on year in the 12 weeks to January 7, though its sales fall did accelerate.

Chief Executive John Browett said that while overall demand for electricals across Europe was subdued, particularly in consumer electronics, Dixons benefited from better sales of higher margin items, such as iPads and other tablet computers, Kindle e-readers, headphones and small domestic appliances such as coffee machines.

Dixons, which also runs Elkjop in Nordic countries, UniEuro in Italy and Kotsovolos in Greece, said group sales at stores open more than a year fell 5 percent in the 12 weeks to January 7.

That compared with analysts' forecasts of a fall of 4-6 percent and a decrease of 3 percent in the second quarter.

Less discounting meant UK gross margins were up 0.4 percentage points, and although like-for-like sales fell 7 percent, they were flat in the two weeks before Christmas.

We were ahead (of rivals). You can see it in some of the competitors' numbers, Browett told reporters.

Dixons' performance also reflected a store revamp programme focused on more popular megastores, better customer service and a well received Christmas advertising campaign featuring Star Wars villain Darth Vader.

Last Thursday Home Retail said a weak consumer electronics market, particularly in video gaming and audio, accounted for two thirds of an 8.8 percent fall in like-for-like sales at its Argos business in the 18 weeks to December 31. On the same day Tesco , Britain's biggest retailer, issued a profit warning.

Kesa Electricals , which is selling its Comet business, is due to update on trading on Thursday.

Dixons said it had seen a mini-boom in UK trading since the anniversary of the VAT sales tax rise on January 4, with like-for-like sales up 23 percent over the 10 days to January 14.

BOND REPAYMENT

Despite a 10 percent fall in like-for-like sales over the 12-week period at Dixons' Southern Europe division, which includes Italy and Greece, Browett said the group had performed solidly in the peak trading period and now had cash and bank facilities to make a 150 million pounds ($230 million) bond repayment due in November.

Dixons shares, which prior to the update had lost 55 percent of their value over the last year, were up 1.3 pence at 11.25 pence at 1035 GMT, valuing the business at 396 million pounds.

The most important trading period of the year is now over, and, with other retailers dropping like flies, these numbers have to be mildly encouraging, given the absence of a profit warning, said Panmure Gordon analyst Philip Dorgan.

Browett said that with consumer confidence in many of its markets fragile it would maintain a cautious approach to the outlook for the year ahead, though events such as the London Olympics, Euro 2012 soccer championships and Queen's Jubilee provide some optimism of a stimulus to television sales.

European shoppers have been curbing spending as their disposable incomes are squeezed by rising prices, muted wages growth, government austerity measures and fears over the impact of the euro zone debt crisis.

Electrical goods chains such as Dixons and European No.1 MediaMarkt Saturn are facing extra pressure from cut-price competition from internet retailers and supermarkets.

In October U.S. group Best Buy abandoned plans for a chain of European megastores, while Kesa effectively paid a bidder to take loss-making Comet off its hands.

Separately on Tuesday, official data showed British inflation fell sharply in December, due to lower fuel prices and clothes discounting, while British luxury brand Burberry reported a sharp slowdown in U.S. sales growth.

(Reporting by James Davey; editing by Andrew Callus and Will Waterman)