Tesco has reported a return to profit and its first quarterly sales growth for three years.

The retailer, which is Britain’s biggest supermarket, reported an annual pre-tax profit of £162m for the year to 27 February, with UK like-for-like sales up 0.9% in the fourth quarter.

The figure includes a strong performance over the six-week festive period, when sales rose by 1.3%.

The results follow last year’s £6.3bn loss, which were the worst results in the history of its trading.

Chief executive Dave Lewis said Tesco had “regained competitiveness in the UK”. He added: “Our balance sheet is stronger and we are making good progress in rebuilding trust in Tesco and our investment case.”

He warned however that the market remained “challenging and uncertain”.

Martin Lane, a representative from www.money.co.uk commented: “After a disastrous year, the leader of the pack is finally rewarded for drastically shaking up its businsess model. Not only has Tesco reduced store numbers and cut back on store opening for 24 hours, it has also followed in the footsteps of Lidl and Aldi by reducing the number of different products it offers.

Lane added that in his opinion the main reason Tesco is now profitable again is because it has listened to its customers and lowered its prices. “The key ingredient Tesco can boast over its discount competitors is hands down better customer service. If Tesco can get close to the prices the budget supermarkets offer, shoppers will return because the customer experience is superior.”

Dave Lewis, who has headed up the company since September 2014, has placed a focus on price cuts and in recruiting more staff for its stores.

He also introduced a management shake-up whereby 25% of office-based roles were reduced, and 53 unprofitable stores were closed; plus he shelved plans to open a further 49 supermarkets.

Lewis has also sold assets which were not deemed to be key to Tesco’s main supermarket business, including the sale of the South Korean business Homeplus, for £4.2bn last September, and by selling its loss-making Blinkbox online video business.