* Pub restaurants and Costa Coffee sales growing
* Expects FY profit to be at higher end of expectations
* Premier Inn sales slow but seen improving in H2
* Shares 11.6 percent up by 0745 GMT
(Adds company, analyst comment, shares, details)
By Rhys Jones
LONDON, Sept 7 (Reuters) - Whitbread, Britain's biggest hotel operator, reported a 2.6 percent fall in underlying half year sales, hit by slower trade at its budget Premier Inn chain, but said it was confident on the full year.
Whitbread on Monday said total sales at Premier Inn, which contributes three-quarters of its profits, were flat in the 24 weeks to Aug. 13, with like-for-like sales down 7.7 percent and revenue per available room (RevPAR) down 9.4 percent.
However, Whitbread's pub restaurants division, which includes the Beefeater and Brewers' Fayre chains, and its Costa Coffee business delivered strong growth, making the group bullish on its full-year prospects.
"The range is between 180 million pounds ($295 million) and 196 million for pretax profit. In the absence of deterioration in trading, we expect the full-year result to be at least at the higher end of market expectations," Chief Executive Alan Parker told reporters on a conference call.
Shares in Whitbread, which have risen 12 percent since the start of the year, were up 11.60 percent at 1,146 pence, valuing the group at over 1.8 billion pounds.
"Trading remains tough but the market is now looking beyond this and we believe that sentiment has firmly turned in Whitbread's favour," said KBC Peel Hunt analyst Nick Batram, who upgraded the company to "buy" from "hold".
Premier Inn's performance was slightly ahead of its first-quarter run rate and the company expects to perform better in the second half when comparatives are softer.
"Across this period RevPar for the industry is down over 11 percent so I think we're doing relatively well. Corporations are seeing value for money in budget hotels such as Premier Inn and prefer us to expensive full-service hotels," said Parker.
Upmarket rivals such as InterContinental Hotels and Millennium & Copthorne have been hit even harder by the global economic downturn.
Last month, Europe's largest hotel group Accor reported a 54 percent drop in first-half profit, while InterContinental said a recovery for the industry might be two years away.
M&C, however, recently said it saw signs of stability returning to its major markets.
Like-for-like sales at Whitbread's pub restaurants division rose by 2.1 percent during the period, as offers such as two main meals for nine pounds on weekdays proved popular.
The group said its Costa Coffee business had seen an 18.4 percent rise in total sales and 2.7 percent growth in like-for-like sales on the back of its new "Seven out of ten coffee lovers prefer Costa" advertising campaign.
Whitbread said its level of debt at the half-year would be similar to the year-end figure of 620 million pounds. (Editing by James Davey and David Cowell)