* Quarterly sales edge up, but miss forecasts
* Trade still challenging
* Says online site crash due to demand and "fixable"
* Shares down 7 percent to two-month low (Adds shares, comment)
MELBOURNE, Nov 21 Australian department store David Jones Ltd posted its first rise in quarterly sales in two years, but missed forecasts and said trading remains challenging ahead of the key Christmas period, knocking its shares down 7 percent.
David Jones, which will offer Christmas internet shopping for the first time this year as it tries to match online rivals, said it was too early to declare a bottoming-out in consumer confidence.
"It's still challenging," said Chief Executive Paul Zahra. "We're not seeing the volatility in trading but we have not, certainly, seen any change in consumer sentiment. It's competitive," he said.
David Jones and other large retailers such as rival Myer Ltd have been scrambling to ramp up their online stores as they lose sales to offshore competitors.
However, a "Click Frenzy" staged event this week -- a local version of successful U.S. online shopping sale "Cyber Monday" -- was dubbed "Click Fail" by social media after the site crashed and thousands were unable to shop as planned.
David Jones ran its own online shopping promotion rather then join Click Frenzy, but its website also crashed.
"The site simply went into meltdown, it could not cope with the traffic," said Zahra. "It's a capacity issue that's all. It's fixable."
Zahra said the store still posted record online sales for the day.
David Jones did not provide sales or earnings forecasts. Myer said last week it was stocking its stores prudently for a worst-case scenario of flat Christmas sales, although it could quickly access more stock if sales rose as expected.
David Jones sales rose 0.3 percent to A$415.6 million ($431.1 million) in the three months to Oct. 27, below analysts' expectations for a 0.7 percent gain, according to a Reuters survey of six analysts. Sales growth had continued at that level in November.
"It's just simply not enough," said Peter Esho, analyst at City Index.
"Management needs to be more proactive and not just wait for the market to improve. Comparable sales growth numbers need to grow into the order of 2-to-5 percent through the rest of the year before the market starts to get excited," he said.
David Jones shares were down 6.6 percent at A$2.40 at 0325 GMT, near a two-month low.
($1 = 0.9640 Australian dollars) (Reporting by Miranda Maxwell; Editing by Richard Pullin)