Tesco has struggled to convince the market it is back on track despite reporting a record £1 billion of Jubilee week sales.
The UK's biggest retailer suffered a 1.5% fall in underlying sales in the 13 weeks to May 26, although this did not include the period around the Queen's Diamond Jubilee when it enjoyed its biggest ever week outside Christmas.
Despite its latest quarterly sales decline, Tesco said its £1 billion turnaround, which has seen it revamp 100 stores and recruit 4,300 extra staff, is beginning to gain traction as it competes more convincingly with rivals.
Although investors were spared another profits warning, shares dropped amid fears it is giving out more money-off vouchers to bolster its performance.
Chief executive Philip Clarke said: "Our customers are seeing the evidence of the changes we're making and they're telling us they like what they see."
Tesco kept its profits outlook for the year ahead unchanged, reassuring investors after the chain's first profits warning in 20 years in January.
Clive Black, an analyst at Shore Capital, said: "We see Tesco UK as toughing it out a little more effectively than it was."
But he added that it will take at least two years for the turnaround to be completed.
The retailer is struggling in a competitive market, as it battles it out with buoyant rivals Sainsbury's, Asda and discounters Aldi and Lidl at a time when shoppers are cutting back.
However, Freddie George, an analyst at Seymour Pierce, said: "We continue to believe that Tesco is still a strong business with an unassailable market leading position in the UK, that has temporarily come off the rails."