The group said successful experiments with home deliveries, coupled with a high-profile stance on genetically modified foods, had contributed to a 12 per cent increase in "same condition" sales in the year to January - three times the level of its nearest rival, Tesco.
Shares rose 3.6 per cent to 283.5p on the back of a 27 per cent increase in profits at Iceland, which until two years ago was thought to be nearing the end of its shelf life.
Malcolm Walker, chairman and chief executive and the founder of the chain, said the jump in sales was the fruit of a series of intuitive decisions, against the grain of conventional retail wisdom.
"We invented home delivery. We were the first to offer telephone shopping in this country and we are the only provider. We banned GM products when the rest of the industry was dithering - and I still take personal credit for coining the phrase `Frankenstein food'," he said.
Once regarded as a retailer specialising in frozen food at bargain prices, Iceland struggled to compete in the early 1990s as Tesco, Sainsbury and Asda lured customers away to out-of-town superstores.
Its shares underperformed the market and the sector for five years, hitting a nadir in late 1996 when they languished at less than 80p. It was at that point that Mr Walker decided on a radical change of strategy.
The first initiative, home delivery, was introduced in 1997. It showed instant results. Iceland's four million customers could have their shopping delivered to their home, at no charge, after selecting items at a store. Home deliveries, now costing pounds 1, represent 11 per cent of Iceland's sales - and the service is growing in popularity.
Iceland has also been helped by key management changes, with the appointment of Russell Ford as trading director and Andrew Pritchard as group finance director. Bernard Leigh, the deputy chairman, will retire this year.
Mr Ford has pushed through changes to Iceland's style, eschewing price competition in favour of "pulse-racing deals", such as two chickens for the price of one. Staff have been asked to be more informal, joking with customers to separate themselves from the drab formality of the superstores.
An ethical stance on GM foods - guaranteeing no genetic modification - was worth millions in publicity value. After much hand-wringing, the superstores announced similar policies earlier this month. Iceland is also leading a campaign for "honest labelling" - avoiding practices such as including the giblets in the weight of the chicken.
Analysts yesterday welcomed the results, which came in ahead of expectations with pre-tax profit at pounds 55.1m. They point out that Iceland is trading at a 35 per cent discount to the market.
At a time when Iceland looks much more robust than its competitors, the shares are on similar forward multiples of around 14. According to Merrill Lynch, Iceland's shares look cheap.