Profits at Tesco, Britain’s biggest retailer, more than halved over the first half of its financial year, crashing from £779m to £354m.
Life-for-like sales were down by 1.1% and the group warned that trading conditions remained challenging.
But the figure was better than some in the City had feared and Tesco said international sales had returned to growth for the first time in three years, rising by 1%.
Pre-tax profit was £74m, compared with a loss of £19m for the same period last year.
Dave Lewis, its chief executive, said Tesco had undergone a dramatic transformation in the year since he joined the business.
“Every important part of Tesco has been or is being transformed operationally, culturally or financially,” he said.
The retailer has decided not to sell its loyalty card data business, Dunnhumby. Lewis said there were also no plans to offload any other major assets, such as retail operations in eastern Europe or Thailand.
Tesco would rebuild its balance sheet by improving cash generation rather than asset sales or a rights issue, he said. “We will stay focused on generating better returns from the assets we’ve got.”
Lewis added that the company was on track to achieve annual profits on a par with last year.
Tesco has had a traumatic year, hit by an accounting scandal and the fierce grocery price war. It has been losing sales to discount retailers such as Aldi and Lidl and last year posted a record £6.4bn loss, one of the biggest in British corporate history.
Lewis, who joined from Unilever just over a year ago, has embarked on a turnaround plan for the group, cutting prices and improving customer services. But some City analysts say progress has been too slow.
He said: “We have delivered an unprecedented level of change in our business over the last 12 months and it is working. The first-half results show sustained improvement across a broad range of key indicators.”
The volume of goods sold and the number of transactions had risen as a basket of food from Tesco was now 3% cheaper than a year ago, he said.
Lewis said Tesco would continue to cut prices: “I think there is more deflation to come – some we have to do as we invest ourselves and I don’t see the market changing,” he said.
Phil Dorrell, of consultants Retail Remedy, said the results showed Tesco was “ready to move from intensive care into the recovery ward”. The group “isn’t cured but it is definitely over the worst”, he added.
On Tuesday, Tesco revealed that the new national living wage would cost it £500m by 2020, putting further pressure on profits. It also announced plans to speed up payments to its smallest suppliers.
But Lewis warned of “seriously unintended consequences” if the wage debate only looked at headline hourly rate not other benefits. He said Tesco already pays staff close to £9 an hour once all benefits were taken into account.
The Tesco results are in sharp contrast to rival Sainsbury’s, whose shares soared last week when it said profits would beat City forecasts.