The group posted bottom-line pre-tax profits of £162 million for the year to 27 February against losses of £6.3 billion a year earlier.
It also highlighted a 0.9 per cent increase in UK like-for-like sales in its fourth quarter, which marked its first full quarter of growth since 2013, as the supermarket major’s recovery under boss Dave Lewis gathers pace.
Lewis said: “We have made significant progress against the priorities we set out in October 2014. We set out to start rebuilding profitability whilst reinvesting in the customer offer, and we have done this. More customers are buying more things more often at Tesco.”
But he added the group continued to face a “challenging, deflationary and uncertain market”.
Full-year operating profit before one-off items came in at £944m, just ahead of City hopes and the £940m it made in 2014-15.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “There are tentative signs at Tesco that the oil tanker may be starting to turn, but it’s going to take some time before the vessel is ploughing along in the right direction.
“An uptick in sales in the fourth quarter was much needed, but profits growth is likely to remain muted while the supermarket continues to invest in its pricing proposition.
“The cost of a typical Tesco shop fell by 3 per cent over the year, and the discounters Aldi and Lidl are going to keep up the pressure on the supermarket to make prices even keener.”
Tesco is reportedly planning to sell off the Dobbies Garden Centres chain, coffee shop Harris & Hoole and restaurant Giraffe to focus on the core supermarket business, but Lewis declined to comment on the speculation.