Walmart Inc raised its annual sales and profit targets on Thursday as shoppers sought bargains on essentials such as groceries.
Shares of the top US retailer by sales rose 2% in morning trading after it also reported better-than-expected results for the first quarter. Its stock has risen 5.5% this year, outperforming the broader Dow Jones Index's .DJI 1% rise.
The Bentonville, Arkansas-based chain has been remodelling its Super-centres and discount stores, by adding more bright lights, signage, digital displays and new sections for home goods at a time it is attracting wealthier households and Gen Z customers.
The retailer also launched a redesigned website and app in April with a cleaner, less cluttered look that highlights deals and tailors items to upcoming holidays or a specific season.
It has also invested heavily in membership programs offered by Walmart and its warehouse business Sam's Club over the years, which is proving to be attractive as they offer free delivery and pickup service and other perks such as 10 cents off gas at the pump at Walmart locations.
Keeping Grocery prices Low
At the same time, the retailer has been keeping grocery prices low as Americans continue to struggle with high inflation in food.
These factors helped Walmart gain market share in the grocery category, including with higher income and younger shoppers, and generate 'good growth' in membership income at its Walmart and Sam's Club operations, executives said on a post-earnings conference call.
Sales at Walmart's US stores open at least a year rose 7.4%, excluding fuel, in the first quarter ended 30 April, handily beating expectations of a 5.25% increase.
"As consumers have less purchasing power, less buying power, we're seeing more of their income, their wallets being devoted towards food, and less towards general merchandise," John David Rainey CFO told Reuters.
Rainey said he expects this trend to continue over the back half of the year.
CEO Doug McMillon said he remained "uncertain" as inflation remained "stubborn" in dry groceries and items made for immediate consumption.
While inflation remains sticky and worries of the economy falling into a recession this year continue, recent economic data shows that consumer spending has remained resilient.
US comparable grocery sales grew in the low double-digits in the quarter, helped by strong demand for food and increased purchases from wealthier households, the company said.
The company also saw higher demand for health and wellness products such as those used to treat diabetes, Rainey said.
A new crop of drugs - Ozempic and Wegovy - have proven to be especially popular in the United States for their ability to treat diabetes and induce weight loss.
Walmart forecast second-quarter results above expectations.
"Walmart's solid quarter underlines the view that the big-box retailer ... is better suited for the current economic climate than some of its industry peers, such as Home Depot and Target," said Jesse Cohen, senior analyst at Investing.com.
"Walmart has managed to weather the current operating climate better than most of its peers."
Full-Year Earnings Forecast
Walmart now expects full-year earnings per share in the range of $6.10 to $6.20, up from its prior outlook of $5.90 to $6.05. Analysts were estimating a profit of $6.16 per share.
The company also forecast net sales to rise about 3.5%, higher than its prior outlook of 2.5% to 3%.
Historically, the company does not raise full-year forecast during its first quarter results.
Rainey said the company broke this tradition because "in this unique environment, it's important to provide an ongoing framework as our views evolve."