Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Cutting prices of Christmas puddings, turkeys, sprouts and mince pies helped Tesco pull a better-than-expected performance out of its shopping bag over the holiday period.

Britain's biggest grocer, which was plunged into the worst crisis in its almost 100-year history in 2014 after it overstated profit, said U.K. same-store sales rose 1.3 percent in the six weeks to January 9, much better than expected. The volume of goods sold was up 3.5 percent. On a quarterly basis, Tesco is at least managing to slow the decline in sales in its British shops, as the chart below shows.

Easing Decline
Tesco's like-for-like U.K. sales excluding VAT and fuel

That's undoubtedly a boost for "Drastic" Dave Lewis, the Tesco CEO so dubbed because of the huge changes he's having to make to try restore the grocer's fortunes. But while he'll welcome a little Christmas cheer, no one should underestimate the trolley full of challenges he still faces.

The profit overstatement is still the subject of an investigation by the Serious Fraud Office, with the risk of an as-yet-unknown financial penalty.

Then there's the debt. Tesco put its total borrowings at 17.7 billion pounds ($25.5 billion) at its half-year results in October, plus a 4.2 billion-pound pension deficit. And this is a company analysts estimate will make an operating profit of about 930 million pounds in the year to February.

Tesco says it doesn't have a problem with liquidity, but it does admit its balance sheet is overstretched.

Lewis hasn't had the luxury enjoyed by Georges Plassat, his counterpart at Carrefour, when he became CEO of the then struggling French supermarket chain. Plassat unearthed a raft of undervalued international assets that he could sell for high prices, such as the business in Colombia.

Tesco has sold its Korean arm -- the jewel in its international crown -- for 4.2 billion pounds, but efforts to offload a majority stake in Dunnhumby, the data analysis business that runs Tesco's Clubcard loyalty scheme didn't go as well. The sale was pulled after bidders balked at the price.

Tesco said Thursday that the sales performances in central Europe and Asia -- now primarily Thailand -- had improved. This makes the prospect of further asset sales look more likely.

Lewis is also taking action on price, through cutting the cost of essentials and Tesco's pledge to match the price of branded goods at the checkout. He's said any out-performance on profit will be reinvested to try to make Tesco more competitive on price with rivals such as German discounters Aldi and Lidl.

Tesco traditionally traded at a big price-to-sales premium compared with Carrefour and the European peer group. Today, it's depressed market value of 13.5 billion pounds is about 0.23 times trailing yearly sales, below the European group and very close to Carrefour, according to Charles Allen at Bloomberg Intelligence.

Changing Places
Tesco has taken over Carrefour's role as the problem-child of European retail

At those levels it's understandable why some investors may spy value in Tesco, helping explain a 4.5 percent jump in the shares on Thursday. They're now off the near-20 year lows hit this month, with the market starting to wonder about a recovery.

But for progress to continue, Lewis will have to keep cutting prices to stem the tide of the German no-frills discounters and put pressure on Britain's other big supermarkets, even with one hand tied behind his back by the weak balance sheet. He might be helped if Sainsbury succeeds in acquiring Argos, which would be a strategic distraction for a big competitor (as discussed in a previous column.)

Lewis's predecessor, Philip Clarke, failed to land a knock-out punch on pricing five years ago, when Tesco was in a far stronger financial position relative to competitors. Lewis must not make the same mistake. After all, for a company with the size and clout of Tesco, putting rivals in the shade should be for life, not just for Christmas.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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James Boxell at