Britain’s biggest supermarket Tesco said it was trading ahead of expectations and outperforming rivals after a move to sacrifice profitability in favour of price cuts and better services won back customers.

Reporting results a week after rival Sainsbury’s showed it too was getting to grips with the turmoil hitting the sector, Tesco showed a steady improvement in underlying sales in its home market which enabled it to reiterate its full-year profit outlook.

The cost, however, of rebuilding the business was high.

First half profit slumped 55 per cent and the group said it stood ready to increase investment in light of the highly challenging market conditions.

Shares in the group traded 1.8 per cent lower at 0735 GMT after a sharp rise ahead of the results.

We have delivered an unprecedented level of change in our business over the last 12 months and it is working

“We have delivered an unprecedented level of change in our business over the last 12 months and it is working,” chief executive Dave Lewis said. “The first-half results show sustained improvement across a broad range of key indicators.”

After two decades of growth, Tesco lost its way, distracted by an expensive overseas expansion strategy when it needed to respond to the rise of discount grocers Aldi and Lidl in its home market.

It reported an annual loss of £6.4 billion in April, one of the biggest in British corporate history and has struggled to recover from an admission that it manipulated its accounts last year.

Battered by the raft of bad news, Tesco brought in Lewis, a former Unilever executive just over a year ago to turn the business around.

Results yesterday showed his changes were starting to have an impact, with an increase in the amount of goods people are buying in store.

Lower prices meant however that like-for-like sales in its home market were still falling, albeit at a lower rate. They were down one per cent in the second quarter, an improvement from the 1.5 per cent decline recorded in the first.

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