"Kaufhof clearly has a better valuation compared to early last year when we were in talks to sell the chain," Koch was quoted as saying. "The company has made some fantastic progress."

Despite the improvement, Koch still intends to sell the chain, he said.

"The department store business cannot be internationalised in the same way as the wholesale or consumer electronics business. Return on investment is substantially lower."

He ruled out a merger with German rival Karstadt, which earlier this month sold a stake in its luxury and sports stores to Austrian investor Rene Benko.

"At the moment we don't seen a reason to look into that option," the Metro executive was quoted as saying.

Metro, the world's No.4 retailer, in early-2012 suspended the sale of its Kaufhof department stores, which at the time were valued at 2-3 billion euros ($2.7-4.1 billion), saying potential buyers were struggling to raise funds.

Businessman Nicolas Berggruen, who rescued Karstadt from insolvency in 2010, has been an advocate of a merger between the two department stores.

(Reporting by Harro ten Wolde and Martin Zwiebelberg; Editing by Janet Lawrence)