Shares in Britain's biggest grocer jumped 13% to their highest level in more than a year as the group revealed a 0.9% surge in UK like-for-like sales in the second quarter.
Tesco boss Dave Lewis cheered the group's bounceback after a difficult two years and assured the chain was on track to hit its full-year earnings target.
But the group counted the cost of its fightback amid a fierce supermarket price war, with half-year profits falling by 28.3% to £71m for the six months to 27 August.
Lewis, who has been leading an overhaul since he took over from Philip Clarke in 2014, outlined aims to slash costs by £1.5bn over the next three years to help boost margins and return the group to bottom line profit growth.
A round £550m of these savings will come from changes to how its stores operate, including cutting back further on 24-hour trading and restocking store shelves during the day rather than at night.
Lewis said the plans were not about cutting jobs.
The half-year figures mark a turnaround after a torrid couple of years, when Tesco posted the biggest loss in its history and was hit by a £326m accounting scandal.
On an underlying basis, Tesco's UK and Ireland first-half earnings more than doubled to £389m from £164m a year earlier, while group earnings lifted 60.2% to £596m.
Lewis said: "We do believe that, after two years, we are stabilising the business and have seen signs of our competitiveness established in the marketplace."
He said it was "just the start" of the group's recovery and cautioned the market remains "challenging and uncertain", with the food price deflation that has been weighing on the sector unlikely to ease off soon.
The group also revealed the fallout from the Brexit vote had seen its staff pension scheme deficit balloon by £3.2bn to £5.9bn.
Retail analysts at Bernstein said it was a "fantastic set of results for Tesco, delivering on all aspects of the UK recovery."
They noted Tesco's UK like-for-like sales by volume and transaction have grown for 21 months straight, showing "the hallmarks of a retail recovery".
The results come amid a high-profile court case involving three former Tesco executives.
Carl Rogberg, 49, Chris Bush, 50, and John Scouler, 48, denied charges in relation to the 2014 accounting scandal when they appeared at Westminster Magistrates' Court last month.
They have been charged with fraud by abuse of position and false accounting and are due to appear in court again on 20 October.
Tesco is also facing legal action from a group of 60 large investors who claim to have lost £150m following the discovery of the accounting black hole.
Lewis said the shareholder action was not a "distraction" and it would deal with the claims "if and when they come."
Our BQ Bulletin emails will land in your inbox at 7.30am, Monday to Friday, with a mix of the latest local business news, national news, and features to inspire you. Sign up here!
Click here to read our privacy statement