Whitbread says Costa Coffee spin off making 'good progress'

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June 27 (Reuters) - Britain's Whitbread (Frankfurt: WHF4.F - news) said on Wednesday it had made "good progress" in Costa Coffee's demerger as it reported a dip in first-quarter sales in its British stores.

Costa Coffee will be spun off after Whitbread yielded to pressure from hedge funds, including activist investor Elliott Investors, who argued it was being held back by being grouped with the Premier Inn hotel chain.

"Constructive early steps have been taken in preparation for the demerger and good progress continues to be made on the core infrastructure and efficiency work that was already underway," the company said in a statement.

Whitbread said it expects to deliver full-year results in line with expectations, adding that it would provide an update on the demerger in October.

Total UK sales rose 3.5 percent but comparable sales at Costa Coffee fell 2 percent compared with a 1.1 percent rise last year.

Whitbread, which has a hotel business in Germany and a coffee chain in China, said its hotel chain Premier Inn saw a 0.9 fall in like-for-like sales due to a drop in visitors to London.

Costa, founded in London in 1971, has expanded rapidly since it was acquired by Whitbread in 1995.

However, over the last two years, the company has felt the pinch from higher inflation and low real wage growth in its home market.

(Reporting by Sangameswaran S in Bengaluru, editing by Louise Heavens)