UPDATE 3-PPR H1 tops forecasts, sees cost cut pay-off in H2

* H1 recurring op profit 707 mln eur vs poll avg 620 mln

* Gucci Group recurring operating profit 305 mln eur

* Says cost cutting to start paying off in H2

* Shares rise 10 percent

(Adds details, background, updates shares)

By Astrid Wendlandt

PARIS, July 31 (Reuters) - French luxury and retail group PPR (PRTP.PA) weathered a difficult market to beat profit forecasts on Friday, and said its cost-cutting efforts were priming it to take early advantage of any recovery.

The retailer behind Gucci Group said operating profit was 707 million euros in the six months to June 30, down from 743 million euros a year ago, but well ahead of the average forecast of 620 million in a Reuters poll of analysts.

At 0924 GMT, PPR shares were up 10 percent at 78.21 euro.

The company said cost-cutting efforts would start paying off this year.

"These effects will be felt in the second half and particularly next year," PPR Chairman and Chief Executive Francois-Henri Pinault told a press conference. "The slightest recovery will have a significant impact in terms of result."

Citi said it expected PPR consensus figures for the year to be nudged up slightly, but given the benefits of easier comparatives it warned of upside risks to current forecasts.

The group has closed three Conforama shops in Spain and four in Italy since the beginning of the year and a Fnac outlet in Basel, in Switzerland.

PPR is fulfilling its plan to cut 672 positions at its mail order business La Redoute, 800 at Conforama and 400 at Fnac.

Pinault said PPR was not planning to make any acquisitions or disposals in the current environment and that it wanted to focus on cutting its debt.

"For the next 12-18 months, acquisitions will not be a priority for the group," he said.

The operating margin of the Gucci brand, which accounts for the bulk of profits at the luxury unit, was down 1.1 percentage points at 26 percent during the first half, PPR's Finance Director Jean-Francois Palus said.

Gucci Group, which also owns fashion brands Yves Saint Laurent and Balenciaga, generated an operating profit of 305 million euros on revenue of 1.642 billion euros, down 3.7 percent at comparable exchange rates.

JAPAN, U.S. WEAKER

By contrast, Italian rival fashion group Tod's (TOD.MI) saw first-half sales rise 2 percent at constant exchange rates, with shoe sales up 7.7 percent on a reported basis amid a "highly challenging environment". [ID:nLT509576]

Palus said Gucci's leather goods sales in the second quarter at its retail outlets rose 6 percent at constant exchange rates, compared with a 21 percent jump in leather goods revenue from chic handbag maker Hermes (HRMS.PA) during the period.

PPR's first-half figures "confirm our view of the relative attractiveness of soft-luxury and retail-exposure in the cycle for luxury goods," S&P Equity Research said.

Palus said luxury sales in the second quarter fell 22 percent in Japan at comparable exchange rates and were down 11 percent in the United States, hit by tough wholesale trading.

In Europe, second-quarter luxury revenue rose 1 percent on the same basis, he added.

PPR's German Puma (PUMG.DE) unit, the world's third-largest sports goods maker, posted a 6.6 percent drop in first-half recurring operating income and a 3.8 percent fall in comparable sales due to a lack of major sporting events. [ID:nLV229151]

PPR first-half sales overall were down 5.9 percent at comparable exchange rates at 9.235 billion euros, above estimates of 9.16 billion based on a Reuters poll of nine analysts.

But PPR stuck to a custom of not giving a full-year outlook.

PPR shares are up 60 percent year-to-date, while the DJ STOXX retail index .SXRP is up 27 percent and the DJ STOXX personal and household index .SXQP is up 20 percent over the same period. (Editing by John Stonestreet/Will Waterman)