* Terry Duddy to leave after 7 years as CEO
* Internal and external candidates to be considered for role
* Argos MD John Walden seen as favourite for job
LONDON, Sept 4 (Reuters) - Home Retail Group, Britain's biggest household goods retailer, said Terry Duddy, one of the longest serving leaders in the stores sector, plans to quit the firm by next July.
After five straight years of profit declines, Home Retail is trying to reinvent Argos, its biggest business, for the digital age, targeting a 15 percent rise in sales by 2018.
Home Retail, which also owns the Homebase DIY chain, said on Wednesday Duddy, CEO for seven years, had informed the board of his intention to step down from his role by the next annual shareholder meeting on July 2, 2014.
"The positive momentum of the business is now such that I feel the time is right to move onto the next stage in my career," said Duddy.
Argos has been hit hard by the economic downturn because its mainly low-income customers have suffered most, and because it faces intense competition from specialist stores, supermarkets like Tesco, and online players like Amazon.
However, it has reported four consecutive quarters of underlying sales growth, helped by its online drive.
After slumping in the recession, shares in Home Retail have increased 49 percent over the last year.
The stock was up 0.5 percent to 144.5 pence at 0713 GMT, valuing the business at 1.17 billion pounds ($1.82 billion).
Home Retail said the search for Duddy's successor would be led by Chairman John Coombe, and would include both internal and external candidates.
A spokesman said Duddy's planned exit was entirely his decision and explained that the July 2 date related to his nine months notice period.
He said if a successor was secured sooner, Duddy would depart earlier.
Internal candidates will include Argos' managing director John Walden and Homebase MD Paul Loft.
Independent retail analyst Nick Bubb said Walden was the clear favourite.
"Walden will need to deliver another decent Christmas for Argos to advance his case," he said.