Walmart has raised its yearly sales and profit forecasts, with demand for groceries remaining strong despite rising prices.
The retailer’s stock rose the most in two years as US consumers flocked to its stores in search of discounts in the face of rising prices, resulting in unexpectedly strong third-quarter earnings and the revised forecasts.
For the quarter, which concluded in late October, adjusted profits per share of $1.50 exceeded the average analyst forecast of $1.32. Walmart announced their updated forecasts for the year in a statement, saying that adjusted earnings will shrink by no more than 7%, compared to previous guidance of a reduction of up to 11%.
Tuesday’s closing price of $147.44 was the highest since July 2020, and cancels out the previous year-to-date drop.
Walmart’s results also provided a boost to the stock prices of other large retailers, including Target, which is due to report earnings on Wednesday.
The largest retailer in the world also announced progress in reducing bloated inventories and unveiled a new $20 billion share buyback program.
In the face of ongoing inflation, investors have been anxiously monitoring consumer spending throughout the key holiday season, when retailers generate more than one-third of their yearly earnings.
Evergrand Capital’s Roy Moore believes that as a primarily budget retailer Walmart is well-positioned to benefit from changes in consumer spending as household incomes are squeezed.
“While household spending is down overall, we are seeing consumers in all income brackets flock to cheaper options,” said Moore. “People can’t stop buying necessities, but they will seek out lower-cost alternatives, which is where budget retailers stand to benefit.”
Moore added that the improved outlook from Walmart may actually be on the conservative side, with the company’s improved inventory position and their strength in food and consumables seeing them into 2023 in a strong position.