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LONDON (Reuters) - Lower prices and more staff helped Tesco (TSCO.L) post a better- than-expected result over the key Christmas period, suggesting Britain's biggest supermarket chain may finally be recovering from several years of turmoil.
Tesco, which has been wrong-footed by the seismic changes in the industry caused by the advance of discount groups Aldi and Lidl, said it grew sales in the 19 weeks to Jan. 9, the first increase in over four years.
Shares rose 6 percent in early trading.
"There is plenty more to do, but we are making good progress and are trading in line with profit expectations for the full year," Chief Executive Dave Lewis said on Thursday.
The firm said sales at UK stores open over a year rose 1.3 percent in the six weeks to Jan. 9, compared with analyst forecasts of a fall of 1-3 percent.
Lower prices, 4,000 additional staff and a strong offering over Christmas meant volumes rose by 3.5 percent and transactions by 3.4 percent as more customers chose to shop more regularly at the supermarket which had previously dominated the British high street for decades.
The group, which reported one of the biggest losses in British corporate history last April and admitted manipulating its accounts, said it had also seen improvements across the board - from its largest stores and smallest, and both home and abroad.
The result, following a strong update from the second-biggest supermarket Sainsbury's and smaller rival Morrisons (MRW.L), suggests the industry is finally to getting to grips with the changes in the sector.
The "big four" supermarket groups, which includes Wal-Mart's Asda (WMT.N), have been hit by a shift away from big weekly food shopping trips towards more frequent spending, either at convenience stores, online or at discounters.
For Tesco those changes came at a time when it was distracted by an ill-fated expansion abroad, meaning it took too long to react.
Under boss Lewis the firm has spent heavily to cut costs and improve the look of its stores. Analysts welcomed the news but said the group needed to now show it could translate the stronger trading into improved profitability.
"Tesco's Christmas numbers have shown there is light at the end of the tunnel," said John Ibbotson, director of the retail consultancy Retail Vision.
"The challenge is to keep up the momentum and stay in the game. In this regard, Tesco will be thankful of its size, which means it can keep its prices down for longer than anyone else."
Tesco also provided an update on its trading for the 13 weeks to Nov. 28, its fiscal third quarter, where like-for-like sales in its home market fell 1.5 percent, better than expected but a slowdown from the 1 percent drop from the second quarter.
Tesco's share price hit an 18-year low last month as investors fretted over the pace of progress under Lewis but they had edged up in recent days as industry data suggested it may have enjoyed a stronger Christmas period.
"This is a useful tick in the box for Tesco," said analysts at Stifel in a note. "It offers some hope that the business might be able to deliver sustained volume growth.
"However ... we only see sustained upside if there is greater visibility that this can be translated into improved margins and we think this is still likely some way off."
Editing by Guy Faulconbridge