By Siddharth Cavale and Aishwarya Venugopal
(Reuters) -Walmart Inc raised its annual sales and profit targets on Thursday as shoppers snapped up its low-priced groceries and other essentials.
Shares of the top U.S. retailer by sales rose 1% after it also reported better-than-expected results for the first quarter. Its stock has risen 5.5% in the year to Wednesday, outperforming the broader Dow Jones Index's 1% rise.
Walmart (NYSE:WMT) has been keeping grocery prices low to fend off competition from Target Corp (NYSE:TGT) and Kroger (NYSE:KR), as Americans continue to struggle with persistent food inflation.
While prices for food eaten at home fell for the second-straight month in April, they remain elevated at 7.1% above a year ago, data from the Commerce department showed last week.
Along with asking suppliers for the lowest prices, the retailer has also been remodeling its Supercenters, by widening aisles, updating fixtures and adding more bright lights, signage, digital displays and spaces to showcase home goods.
Walmart 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 and other perks such as 10 cents off gas at the pump at Walmart locations.
This is helping it gain wealthier households and Gen Z customers, who are looking for both low price and convenience, such as grocery delivery and curbside pickup, CEO Doug McMillon said on a post-earnings call. CFO John David Rainey said sales at the remodeled stores were "a couple of percentage points" higher than those not remodeled.
Overall, sales at Walmart's U.S. stores open at least a year rose 7.4%, excluding fuel, in the first quarter ended April 30, 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," CFO John David Rainey 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.
HEALTH PRODUCTS HELP DELIVER IMPRESSIVE QUARTER
For Walmart, U.S. comparable grocery sales grew in the low double-digits, while general merchandise sales declined mid single-digits, Rainey said on an analyst call.
The company also saw more customers reach for health and wellness products this quarter, singling out increased demand for drugs used to treat diabetes.
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.
"That was about as impressive as a quarter that Walmart could have," said David Wagner, a portfolio manager at Aptus Capital Advisors that holds Walmart shares.
Walmart's strong results are in stark contrast to rivals Target and Home Depot (NYSE:HD)'s bleak forecasts, which they blamed on weak consumer demand. Walmart's online sales were also strong, rising 27% in the first-quarter compared to a 3.4% decline for Target during the same period.
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 $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 forecasts 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."