DSG International PLC (DSGI.LN), Europe's second-biggest electrical retailer by sales, cheered investors Wednesday by reporting a smaller-than-expected sales drop for the first four months of its year and indicating the consumer downturn may not last as long as some had feared.

The owner of the Curry's and PC World said that sales in the 16 weeks to Aug. 22, dropped 6%. Stripping out acquisitions, disposals and the effect of the weak U.K. currency, sales were also down 6%. This compares with a 9% drop in the year to May. Analysts had feared a sales drop of more than 10%.

Chief Executive John Browett said on a conference call with reporters that the group's sales performance had beaten expectations despite DSG's focus on margins and costs rather than top-line growth. Gross margins across the group grew 0.7%.

Browett said that while trading across Europe remains difficult, "the outlook now looks less negative than it did in the spring."

While Europe was clearly still in recession, DSG's sales trends have shown improvements each month, partly due to a store-revamp program but also due to an improving economic climate, Browett said.

"It's not going to be quite as bad as some of the more pessimistic scenarios had suggested," the CEO said.

The stronger-than-expected sales and upbeat outlook cheered the market and by 0735 GMT, the company's shares were up 2 pence, or 7.1%, at 29 pence in a higher London market.

DSG has suffered more than some of its rivals due to exposure to the weak U.K. market, with Metro's Mediamarkt posting a 2.9% rise in first-half sales recently, boosted by a 5.8% rise in Germany. The German retailer's success was attributed to a store revamp program.

DSG is also currently in the process of refitting its U.K. stores - partly funded by a successful GBP311 million rights issue in April.

The revamped stores have a larger range of products, with demonstration and interactive areas. The initiative has started to deliver higher sales and profit margins at the converted stores.

Browett said that all of the new stores had continued to deliver a profit performance between 11% and 65% better than older-format stores.

So far 108 of its 519 U.K. stores have been converted to one of its four new formats, compared with 63 stores at the beginning of May. A further 60-80 stores will be refitted by the year end.

DSG also said Wednesday it has agreed to sell its eight Polish Electro World stores to IDMSA Brokerage House, working with Mix Electronics S.A - a rival electrical retailer in Poland - for a nominal consideration of EUR1.

Browett said the Polish sale marked the last of DSG's major disposals.

Company Web site: www.dsgiplc.com

-By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; michael.carolan@dowjones.com