Cutting prices of Christmas puddings, turkeys, sprouts, and mince pies helped Tesco pull a better-than-expected performance out of its shopping bag over the holiday period.
Britain’s biggest grocer, which was plunged into the worst crisis in its almost 100-year history in 2014 after it overstated profit, said UK same-store sales rose 1.3% in the six weeks to January 9, much better than expected.
The volume of goods sold was up 3.5%.
On a quarterly basis, Tesco is at least managing to slow the decline in sales in its British shops.
That’s undoubtedly a boost for ‘Drastic’ Dave Lewis, the Tesco CEO so dubbed because of the huge changes he is having to make to try restore the grocer’s fortunes.
But while he will welcome a little Christmas cheer, no one should underestimate the trolley full of challenges he still faces.
The profit overstatement is still the subject of an investigation by the Serious Fraud Office, with the risk of an as-yet-unknown financial penalty.
Then there’s debt.
Tesco put its total borrowings at £17.7bn (€25.6bn) at its half-year results in October, plus a £4.2bn pension deficit.
And analysts estimate that the company will make an operating profit of about £930m in the year to February.
Mr Lewis has not had the luxury enjoyed by Georges Plassat, his counterpart at Carrefour, when he became CEO of the then struggling French supermarket chain.
Mr Plassat unearthed a raft of undervalued international assets he could sell for high prices, such as the business in Colombia.
Tesco has sold its Korean arm — the jewel in its international crown — for £4.2bn, but efforts to offload a majority stake in Dunnhumby, the data analysis business that runs Tesco’s Clubcard loyalty scheme, did not go as well.
Mr Lewis is also taking action on price, through cutting the cost of essentials and Tesco’s pledge to match the price of branded goods at the checkout.
He has said any outperformance on profit will be reinvested to try to make Tesco more competitive on price with rivals such as German discounters Aldi and Lidl.
Tesco traditionally traded at a big price-to-sales premium compared with Carrefour and the European peer group.
It is understandable why some investors may spy value in Tesco, helping explain a 4.5% jump in the shares on Thursday.
They are now off the near-20 year lows hit this month, with the market starting to wonder about a recovery.
But for progress to continue, Mr Lewis will have to keep cutting prices to stem the tide of the German no-frills discounters.
Mr Lewis’s predecessor, Philip Clarke, failed to land a knock-out punch on pricing five years ago.
After all, for a company with the size and clout of Tesco, putting rivals in the shade should be for life, not just for Christmas.
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