By James Davey

LONDON (Reuters) - Department store group House of Fraser posted a 16 percent increase in first-half profit and said trading was continuing to pick up, providing further evidence the recession may be nearing an end.

"We certainly planned for it to be worse than it was, so from that perspective we had a firm grasp of our cash and our cost control," Chief Executive John King told Reuters on Wednesday 9 September.

"We've seen since Easter improvement in performance and trends across nearly all categories," he said.

The 160-year-old firm, taken private by the Highland Acquisitions consortium in 2006, posted retail earnings before interest, tax, depreciation and amortisation (EBITDA) of 10.7 million pounds for the 26 weeks to July 25, up from 9.2 million pounds in the previous year.

Sales at stores open over a year fell 2.7 percent over the half, but were up 0.5 percent in the second quarter, and up 1.3 percent in the six weeks to September 5.

Gross margin increased 18 basis points to 35.7 percent in the first-half.

House of Fraser, which trades from 62 stores in the UK, cut its net debt by 21 million pounds to 294 million pounds.

"We've repaid or cancelled 150 million pounds of debt since the take-private three years ago. We're 100 million pounds ahead of our original plan," said King.

He is targeting net debt below 180 million pounds by the company's year-end at the end of January 2010, and full-year retail EBITDA of 65-70 million pounds.

Rather than new store openings, King expects the firm's growth to be driven by further development of "House Brands," such as Linea, Episode and Kenneth Cole New York, as well as store refurbishments and an enhanced eCommerce offer.

"From a wider market perspective there seems to be a little bit more consumer confidence than there has been but I am still wary of what may well be ahead of us," he said.

House of Fraser's positive update was made as a survey from Nationwide said consumer morale hit its highest level in more than a year in August.

Also on Wednesday 9 September, Sports Direct, Britain's biggest sporting goods retailer, reported better-than-expected first-quarter sales.

In June, market speculation linked Debenhams with a possible low-ball bid for House of Fraser.

"It's a nice story ... but as far as we're concerned we're just going to carry on with our strategy and do our thing," added King.

(Editing by Rupert Winchester)