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Tesco profit beats estimates

London - Tesco reported first-half profit that beat analysts’ estimates, showing that chief executive officer Dave Lewis’s plan to revive Britain’s biggest grocer is gaining traction.

Operating profit rose 60% to £596m before one-time items, the Welwyn Garden City, England-based company said on Wednesday. The median estimate of 15 analysts surveyed by Bloomberg News was for earnings of £523m.

“Whilst the market is uncertain, we have made significant progress against the priorities we set out two years ago, stabilizing the business and positioning us well for the future,” Lewis said in the statement.

Lewis has brought stability to Tesco by cutting prices, narrowing product ranges and improving customer service amid a price war triggered by the expansion of discounters Aldi and Lidl.

Investor optimism has been tempered by developments outside of the CEO’s control: a new minimum wage is raising costs for the UK’s largest private-sector employer while falling bond yields drove up Tesco’s pension deficit by £3.2bn to £5.9bn.

In the UK, same-store sales excluding fuel rose for a third straight quarter. The growth of 0.9% beat the analyst estimate for a 0.5% increase.

“Tesco’s recovery hinges on its ability to regain growth in the UK,” Philip Benton, senior analyst at Euromonitor International, said before the earnings were released. Measures such as slower supermarket expansion, narrower product ranges, increased store staffing and permanent price cuts will enable it to compete more directly with the discounters, he said.

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