By Siddharth Cavale and Savyata Mishra
(Reuters) -Americans are worried about inflation, so they are shopping more at Walmart (NYSE:WMT).
The U.S. retailer raised its annual sales and profit forecasts on Thursday for a second time this year, as Americans flocked to its stores for inexpensive essentials, sending its shares up 8% to a record high.
The world's largest retailer by sales is one of the first big U.S. chains to report quarterly results that provide insight into consumer health, particularly after the government reported an unexpected deterioration in the labor market, raising fears of a recession.
Walmart's results suggest that despite several years of above-average inflation, consumer spending remains resilient.
Inflation has also shown signs of moderating.
"We have not seen any additional strain on consumer health in our business," Walmart's Chief Financial Officer, John David Rainey, said on a post-earnings call, a viewpoint it has maintained for several quarters.
The retailer's comments contrasted those of rivals Amazon (NASDAQ:AMZN) and Home Depot (NYSE:HD) that warned of consumer caution, even among their more middle- and upper-income shopper base.
Walmart's U.S. comparable sales, which combine online and sales at stores open for at least a year, rose 4.2%, handily beating the 3.3% rise analysts had expected, according to LSEG.
Those sales were boosted by strong demand for fresh food, particularly produce and high-quality meats, Walmart said. Shoppers also increased spending on personal care and beauty products, and when it came to health and wellness, they favored branded drugs over generics.
The company noted that higher-income customers, especially those earning over $100,000 annually, significantly contributed to sales of home furniture, appliances, clothing, and toys, leading to broad market-share gains in these categories.
The retailer reported a 16% increase in membership and other income during the quarter, which contributed to a 22% rise in U.S. online sales. Walmart's U.S. business generates 60% of its nearly $650 billion in annual sales.
Walmart's U.S. CEO, John Furner, said on the call that the strong sales trends have extended into August with back-to-school shopping. He said about half of its customers have not completed their purchases.
"The U.S. consumer seems to be in a stable position relative to the start of this year, which is encouraging given concerns of a looming slowdown," CFRA Research analyst Arun Sundaram said.
Steven Shemesh, an RBC Capital Markets analyst, noted, however, that an increase in higher-income shoppers at Walmart might signal concerns about the economy's health. On the other hand, he said it also highlights the success of Walmart's investments in e-commerce.
"While others are witnessing a weaker consumer, Walmart is one of the few companies poised to gain market share in this environment," Shemesh said.
Walmart's heft in grocery has largely shielded it from some broader economic pressures. The company has also strategically invested in store and merchandise upgrades, as well as services such as curbside pickup and delivery, allowing it to capture market share from competitors including Target.
"Walmart's significant investments in pricing, store quality, technology, and supply chain have enabled the company to continue gaining market share, likely offsetting what we perceive as a slower-spending environment," said Scot Ciccarelli, an analyst at Truist Securities.
Target, whose shares were up 4% following Walmart's results, will post its quarterly report next Wednesday.
Walmart forecast annual adjusted profit per share to be between $2.35 and $2.43 and consolidated net sales to grow in the range of 3.75% to 4.75%. Both forecasts were higher than its prior expectations of $2.23 to $2.37 per share and 3% to 4% sales growth.
Second-quarter earnings came in at 67 cents per share, beating analysts' expectations for 65 cents, according to LSEG. Its overall revenue rose 4.8% to $169.3 billion, beating Wall Street forecasts of $168.53 billion.
Walmart shares rose as much as 8.4% to a record high of $74.44. The blue-chip stock has climbed 30.7% in 2024 as of Wednesday's close, outperforming the S&P 500's 14.4% rise.