London: Britain’s Tesco Plc said its £1 billion (Dh5.9 billion, $1.6 billion) turnaround plan for its home market was starting to work as it posted its highest sales growth in three years over the crucial Christmas period.

Tesco, the world’s third-largest retailer, beat forecasts for underlying sales growth, regaining an edge after a dismal Christmas in 2011 prompted the group’s first profit warning in 20 years and a strategic rethink.

Shares in Tesco - which also announced the appointment of Chris Bush as managing director to run its key British business - rose more than 2 per cent to hit their highest in a year.

Sales at British stores open more than a year, excluding fuel and VAT sales tax, grew 1.8 per cent in the six weeks to Jan. 5, part of Tesco’s fiscal fourth quarter, compared with analysts’ forecasts in a range of up 0.5 to 1.5 per cent and with a third-quarter fall of 0.6 per cent.

“Whilst our seasonal performance is encouraging, there is a lot more to do,” said group CEO Philip Clarke.

The outcome was driven by a stronger food performance and an 18 per cent rise in online food sales, though general merchandise - including electricals - was still a drag on growth.

The company did, however, benefit from easy comparative numbers, as in the same six week period of Tesco’s last financial year like-for-like sales had fallen 2.3 per cent.

“They’ve really done well in the UK, showing the strongest evidence to date that they’re regrouping,” said analyst Clive Black at brokerage Shore Capital. “The momentum on Tesco is now more up than down.”

Tesco is battling to regain momentum against a weak UK economy, with consumers fretting over job security and a squeeze on incomes. The firm has suffered more than rivals, in part because it sells more discretionary non-food goods on which shoppers have been cutting back most.

In April Clarke launched a strategy to revive UK sales, investing in more staff, revamped food ranges, refined marketing and smartened stores that give more space to food.

Yet some shareholders are still to be convinced of its effectiveness.

“The expression ‘one swallow doesn’t make a summer’ comes to mind,” said one top 20 investor in Tesco. “The comparisons are flattering ... and there are still plenty of structural issues to resolve.

“Have you been in a Tesco store recently and noticed a difference in the offering? Because I haven’t.”

GROUP VISION

Bush, a Tesco lifer and currently chief operating officer in Britain, will step up to run the British business. Clarke had taken direct control of the UK business in March after ousting Richard Brasher.

Clarke said he would stay close to the British business but his focus would now be on the group’s “vision and strategy”.

Shares in Tesco, down 10 per cent over the last year, were up 8.4 pence at 358p by 0900 GMT, valuing the business at about 29 billion pounds.

Though consumer spending generates about two-thirds of Britain’s gross domestic product, many retailers are struggling. On Wednesday Marks & Spencer, Britain’s biggest clothing retailer, posted a disappointing trading update, while camera specialist Jessops entered administration, threatening 2,000 jobs.

With consumer price inflation running at 2.7 per cent, Tesco is still seeing negative real growth in the UK, as are its so-called big four grocery rivals — Wal-Mart’s Asda, J Sainsbury and Wm Morrison.

On Wednesday Sainsbury posted a 0.9 per cent rise in revenue, excluding fuel and new stores, for the 14 weeks to Jan. 5, while on Monday Morrison reported a 2.5 per cent like-for-like fall, excluding fuel and VAT sales tax, for the six weeks to December 30.

Asda is not due to report until February.