Tesco recovery on track as sales rise sustained

Tesco, Britain's biggest retailer, said its recovery was gaining momentum as it reported a second successive quarter of UK sales growth, the first time it has done so in more than five years.

Hammered by changing shopping habits, the rise of German discounters Aldi and Lidl and an accounting scandal, Tesco has been fighting back under Chief Executive Dave Lewis who took charge in Sept. 2014.

"We have stabilised the business and started to generate growth," he told reporters on Thursday.

His focus is on lower prices, streamlined product ranges, better customer service and simplified relationships with suppliers, the root cause of the accounting scandal that was uncovered shortly after he arrived and is the subject of a criminal investigation by Britain's Serious Fraud Office.

Tesco said sales at stores in its home market which have been open more than a year rose 0.3 percent in the 13 weeks to May 28, the first quarter of its financial year.

That compared with analysts' forecasts of flat to up 0.5 percent and built on growth of 0.9 percent in the previous quarter -- its first quarter of UK underlying sales growth for over three years.

"I am confident that the improvements we are making for customers are working," said Lewis.

Despite its problems, Tesco remains the biggest supermarket chain in Britain with a market share of more than 28 percent.

COFFEE OFF THE MENU

On Thursday Tesco said it had agreed the sale of its Harris + Hoole coffee shop business to Caffè Nero for an undisclosed sum.

Lewis has also cut thousands of jobs and sold businesses in South Korea and Turkey as well as the Giraffe restaurant chain and Dobbies Garden centres, as he looks to simplify the company, cut debt and rid Tesco of its junk credit rating.

Lewis said no more asset sales are planned.

Shares in Tesco rose up to 3.3 percent.

"Tesco's recovery remains on track," said analysts at Bernstein.

Though former Unilever executive Lewis has impressed investors with his decisive action since replacing the sacked Phil Clarke, Tesco's shares are still down 21 percent year-on-year, reflecting what the CEO called "a challenging market with sustained deflation."

"There are a lot of factors out there definitely not within management's control," he said.

"We need to keep re-building momentum and I'm sure as we perform, that will be reflected in the share price."

Group like-for-like sales grew 0.9 percent, boosted by a 3.0 percent increase in international sales.

Analysts' profit forecasts for 2016-17 came down in April after Tesco warned that profit growth would be harder to deliver this year than last, given an industry price war.

Finance chief Alan Stewart said Tesco was comfortable with analysts' current consensus of 1.175 billion pounds ($1.74 billion), up from 944 million pounds in 2015-16.

Tesco's annual shareholders' meeting will be held at 1000 GMT.

$1 = 0.6771 pounds