(Bloomberg) — Walmart Inc. raised its sales guidance for the full year, buoyed by consumers buying necessities and seeking deals even as they curtail spending elsewhere.
The Bentonville, Arkansas-based company said it now expects net sales to rise as much as 4.75% for the year, versus previous guidance for a gain of as much as 4%. It also raised its targets for operating income and profits.
“We are seeing that the consumer continues to be discerning, choiceful, value-seeking” and focusing on essentials, Chief Financial Officer John David Rainey said in an interview on Thursday. “We are not seeing any incremental fraying of our customers’ financial health.”
Walmart shares rose as much as 8.4% in New York trading, the biggest intraday gain since November 2022. The stock is up 31% year to date through Wednesday’s close, compared with a 14% gain for the S&P 500 Index. Shares of rival Target Corp. were also up as much as 6%.
In recent weeks, investors have tried to make sense of murky job markets and stock volatility by looking at companies for clues. Walmart’s bullishness points to an increasingly choosy US consumer facing economic uncertainty and high interest rates. Americans are pulling back on travel and deferring big home renovations, with retailers from Home Depot Inc. to Wayfair Inc. signaling a weakening spending environment. Instead, they are focusing on essentials like groceries, which has given Walmart’s business a boost.
Each month of the quarter remained relatively consistent, and there was no pullback during the latest quarter in July. Higher guidance is a reflection of the company’s outperformance in the first half of the year, Rainey said, adding that uncertainty still lingers due to the upcoming US election and geopolitical unrest in the Middle East.
Walmart said comparable sales in the US rose 4.2%, excluding fuel, last quarter driven by higher units and transactions. Analysts expected a gain of 3.4% for the metric, which captures revenue generated online and in stores open at least a year. It posted adjusted earnings of 67 cents a share, topping the analysts’ average estimate of 65 cents.
The company’s sales of general merchandise grew after 11 consecutive quarters of declines. The category, which has higher margins, has dragged on the business in recent years as consumers pulled back from discretionary items. Walmart said its broader assortment of these products is drawing consumers.
Within general merchandise, lawn, garden and seasonal products such as pool noodles were standouts during the quarter. Combining all pool noodles Walmart sold would stretch out to 30,000 football fields, Rainey said. Back-to-school season is off to a healthy start, with stationery being popular.
“We aren’t experiencing a weaker consumer overall,” Chief Executive Officer Doug McMillon said on a call with analysts. “They want value. They want a broad assortment of items and services.”
Notable deflation is unlikely going forward, he said. Prices of general merchandise products, which refer to non-essential items like appliances, are unlikely to decline much further. Packaged food prices are still inching up, with some suppliers discussing potential increases, and Walmart is pushing back, he said.
Walmart has been an outlier among consumer companies generally facing weaker demand as value-seeking behaviors propel its business.
Home Depot and Whirlpool cut their sales forecasts for the year as their shoppers held back spending on big-ticket items and home improvement projects. Home Depot CFO Richard McPhail said on Tuesday that as long as interest rates remain high even those with means to spend aren’t splurging, a trend he called a “deferral mindset.”
Whirlpool Chief Executive Officer Marc Bitzer said in an interview in late July that consumer confidence has taken a hit. “You have a consumer who’s somewhere navigating between inflation, interest rate increases, global wars and an election campaign which seems to be played on doomsday scenarios,” he said.
For Walmart, consumer retrenchment to focus on essentials like food has bolstered its business. Groceries, which make up roughly 60% of Walmart’s US sales, have continued to boom, and the retailer is gaining traffic, market share and shoppers across income cohorts. In particular, wealthier shoppers have been a meaningful driver as they search for deals, too. Over the quarter, Walmart added more discounts, which rose 35% in food.
“Heavy investments in pricing, store standards, technology and supply chain have enabled the company to continue to gain market share,” Truist Securities analyst Scot Ciccarelli said.
Retail spending in the US also picked up faster than expected for July, partially due to e-commerce sales rising at a modest clip. That potentially reflects heavy discounting in the period from promotions like Walmart Deals and Amazon.com Inc.’s Prime Day.
Walmart’s e-commerce business grew 22% in the US, as the operator of about 4,600 stores relies on its vast network of physical locations to fulfill online orders. The company is also investing in advertising, third-party marketplace and other newer businesses that have higher profit margins. Walmart’s US e-commerce business is approaching profitability, a crucial piece of the puzzle in its competition against Amazon.com Inc.
Executives said the company is narrowing e-commerce losses as it cuts costs related to delivery. Consumers are paying up to receive faster deliveries, and the company is making progress toward making the online business profitable.
The company has also been investing in advertising, membership, third-party marketplace and other newer businesses that have higher profit margins. The growth of these areas is helping Walmart reinvest in price and other parts of operations. Advertising and membership were major drivers of operating income growth.
International sales rose 8.3% led by Walmex and China. Comparable sales growth in China increased 13.8% due to strength at Sam’s Club and in e-commerce. Walmex saw strong sales in food and consumables.
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