(Corrects share price in 5th bullet, 3rd par to fall not rise)
* 10 weeks to Jan. 8 sales down 5.5 percent
* Darty sales down 6.2 percent, margin stable
* Comet sales down 2.5 percent, margin down 170 basis pts
* Expects difficult economic environment to continue
* Shares down 3.0 percent
(Adds detail; executive, analyst comments; shares)
By James Davey
LONDON, Jan 20 (Reuters) - Kesa Electricals Plc, Europe's No.3 electrical goods retailer, posted on Tuesday a smaller-than-expected fall in sales for the key Christmas period but said it expected its markets to be tough in 2009.
"We are expecting the difficult economic environment to continue and we will remain particularly focused on maintaining our strong balance sheet including net cash at the end of April," the group said.
Shares in Kesa were down 2.75 pence, or 3.0 percent, at 89.0 pence at 1045 GMT. Prior to the update, shares had lost 58 percent of their value over the last year, underperforming the DJ Stoxx European retail index by 47 percent.
The group, which owns French market leader Darty, Britain's second-biggest electrical goods retailer Comet and trades in another 10 countries, said sales at stores open at least one year fell 5.5 percent over the 10 weeks to Jan. 8.
This compares to forecasts of a drop in like-for-like sales of between 6.5 and 8.8 percent, according to a Reuters poll of five analysts, and a fall of 5.5 percent in the first half to Oct. 31.
"As anticipated, the trading conditions across all our markets for our important peak period were very tough with further deterioration in Continental Europe," Kesa said.
Total group revenue was up 11 percent.
Darty's like-for-like sales fell 6.2 percent, with gross margin stable.
"I am totally convinced that Darty is gaining share," said Jean-Noel Labroue, who retired as chief executive on Jan. 5 but is currently in a transition period to hand over the job to Thierry Falque-Pierrotin, in an analysts conference call.
A strong post-Christmas performance limited the fall in Comet's like-for-like sales to 2.5 percent, much better than the fall of up to 13 percent that some analysts had forecast.
However, Kesa said market conditions in the United Kingdom remained "very aggressive", leading to a cumulative year-to-date decline in Comet's gross margin of about 170 basis points.
Labroue said he did not expect Comet to maintain its sales performance over the holiday period.
"We have to plan ourselves to be back to the like-for-like trend we were experiencing before peak," he said. "Consumer confidence is very bad in this country."
Comet's like-for-like sales fell 11.6 percent in the first half.
Philip Dorgan, an analyst at Panmure Gordon, said in a research note that Comet's year-to-date margin decline implied a 350 basis points collapse in the second half.
Dorgan cut his forecast for profit in the year to the end of April 2009 to 49 million from 69 million pounds and said the final dividend was at risk. Consensus was 80 million pounds before Tuesday's statement.
Many European retailers are struggling as consumers cut back on spending, particularly on expensive items like refrigerators and washing machines, amid soaring unemployment and falling property values.
Last week bigger rival DSG International Plc, which trades as Currys and PC World in Britain, UniEuro in Italy and Elkjop in Nordic countries, reported a 10 percent fall in like-for-like sales for the 12 weeks to Jan. 10. (Editing by Erica Billingham and Karen Foster)