Walmart lifts forecasts as bargain-minded shoppers seek out low-priced groceries

By Aishwarya Venugopal and Siddharth Cavale

(Reuters) -Walmart Inc raised its full-year forecasts and beat second-quarter sales and profit estimates on Thursday, citing strong demand for its low-priced groceries and health and wellness products.

Shares in Walmart, which have climbed 12.3% this year, were down slightly in morning trading.

"The earnings report from the world's largest retailer certainly checked all the boxes," said Art Hogan, chief market strategist at B Riley Wealth.

"The strong report also bodes well for the back-to-school and holiday shopping seasons," he added.

Sales at Walmart's U.S. stores open at least a year rose 6.4%, excluding fuel, in the three months ended July 31, beating estimates of a 4.4% increase, according to Refinitiv data.

Average transactions and the amount of items shoppers put in their carts also rose, the company said.

Walmart Chief Financial Officer John David Rainey told Reuters that shoppers are still "choiceful and discerning" and are focused on buying food and health and wellness products.

But there were green shoots. Easing inflation on general merchandise products, like apparel, opened wallets. And even though the category's sales declined in the low single digits, it posted a much stronger performance than the prior quarter.

Shoppers also responded strongly to seasonal events, such as the Memorial Day and July 4 holidays as well as the back-to-school season, indicating that the consumer is not compromising and showing a willingness to spend, Rainey said. These signs contributed to its decision to raise guidance, which estimates net sales growth for the year increasing 4% to 4.5%, from 3.5% earlier.

"It is certain that they (consumers) are not suffering, but I am hesitant to say they are strong," Rainey said.

U.S. consumers have shown resiliency in spite of rising interest rates and elevated prices for goods this year.

U.S. retail sales in July rose more than expected as Americans boosted online purchases and dined out more. Tight labor markets, increasing wages and rising consumer confidence are driving the U.S. consumer to keep spending, said Erik Lundh, principal economist at The Conference Board.

But Americans may still see a hit to their spending power in the coming year to 18 months due to rising energy costs and the resumption of student loan payments in October, Rainey said.

Walmart investor Huntington Private Bank said the company's full-year sales forecast indicates slowing growth.

Its net sales guidance implies only 1.5% to 2% growth in the next two quarters, which is seemingly conservative compared to its first- and second-quarter growth rates of 7% and 6%, respectively, Huntington senior equity analyst David Klink said. But those numbers are also up against tough comparisons vs last year, he added.

Charles Sizemore, founder of Sizemore Capital Investments and a Walmart investor, said that the company was being prudent with its forecast as a softer economy and sticky inflation could still dent sales of discretionary items.

"While Walmart has a lot to celebrate this quarter, they are right to manage expectations for the rest of the year," said Sizemore, whose firm owns $2.4 million in Walmart shares.

Walmart expects fiscal 2024 earnings to be in the range of $6.36 to $6.46 per share, above its prior forecast of $6.10 to $6.20. Analysts on average were estimating $6.28 per share, according to Refinitiv IBES data.

The forecast was in contrast to rival Target, which on Wednesday cut its full-year expectations, citing consumer spend away from electronics, home and beauty products. Home improvement chain Home Depot maintained its full-year guidance earlier this week.

(Reporting by Aishwarya Venugopal in Bengaluru and Siddharth Cavale in New York; Editing by Sriraj Kalluvila, Sharon Singleton and Mark Porter)