Walmart Raises Forecasts. Consumers Are Still Spending.

Walmart raised its fiscal-year guidance to reflect the strength of its third quarter. (Justin Sullivan/Getty Images)

Key Points

• Walmart exceeded third-quarter earnings expectations with adjusted earnings of 62 cents per share and revenue of $179.5 billion, a 5.8% increase.
• The company raised its fiscal-year net sales guidance to a range of 4.8% to 5.1% and adjusted earnings per share to $2.58 to $2.63.
• Walmart’s stock gained, reversing an earlier loss.

Walmart’s everyday low prices continue to resonate with price-sensitive consumers, helping the company deliver “beat-and-raise” third-quarter results and edging the stock higher on Monday.

The company’s adjusted earnings of 62 cents a share topped Wall Street’s projections for 60 cents, according to FactSet.

Revenue rose 5.8% year over year to $179.5 billion, ahead of projections for $177.4 billion. Global e-commerce sales jumped 27% from a year ago, Walmart said, helping drive market-share gains and sales growth.

Walmart raised its financial forecasts for the fiscal year to reflect the strength of its third quarter. It now expects net sales to increase between 4.8% and 5.1% from a year ago, better than the prior range of 3.75% to 4.75%. Adjusted earnings per share will range from $2.58 to $2.63. The company’s August outlook projected $2.52 to $2.62 in earnings per share for the year.

“We’re well-positioned for a strong finish to the year and beyond that, thanks to our associates,” said CEO Doug McMillon.

Shares were up 5.6% Thursday, on track to becoming the best performer in both the Dow Jones Industrial Average and the S&P 500.

TD Cowen analyst Oliver Chen had cautioned that given the shares’ lofty valuation and high expectations among investors—Walmart stock trades at 35 times the next 12 months’ earnings, hovering around 10-year highs—it was possible that the response to even a solid report could be muted.

And while shares initially traded lower in the premarket session, the company’s upbeat tone during its earnings call as well as assertions its CEO change wouldn’t lead to drastic shifts in strategy helped reverse the loss.

This is McMillon’s last earnings call as CEO of Walmart. The company announced on Friday he would retire in February, to be succeeded by Walmart U.S. CEO John Furner. Investors largely expect Furner, who has been at the company for over three decades, to maintain the course charted by McMillon, while positioning Walmart for the new AI-driven retail world.

“WMT continues to block and tackle, which is exactly what investors would like to see after the CEO change from Doug McMillon to John Furner,” said David Wagner, head of equity and portfolio manager at Aptus Capital Advisors. “It shouldn’t be a surprise that this transition coincided with a very WMT-esque report via a beat and raise and strong commentary around positioning.”

Bulls say Walmart is worth the valuation despite any near-term challenges. Joseph Feldman, an analyst at Telsey Advisory Group, noted ahead of earnings that the company’s relative stability amid consumer uncertainty, coupled with investments in alternative profit drivers that are helping Walmart grow operating income at a faster pace than sales, position the company well for market-share gains.

The company also announced that it was transferring the listing of its common stock and nine bonds to the Nasdaq stock market on Dec. 9. It currently trades on the New York Stock Exchange. The move underscores Walmart’s success in transforming a bricks-and-mortar retailer into a leader in e-commerce.

“Moving to Nasdaq aligns with the people-led, tech-powered approach to our long-term strategy,” said John David Rainey, Walmart’s chief financial officer.

Jefferies analyst Corey Tarlowe said the decision is more than symbolic, as it signals a “strategic alignment with the tech-heavy exchange.” It also positions Walmart for inclusion in the Nasdaq 100, a move that Tarlowe says could attract more passive inflows from index-tracking funds.

Walmart’s advertising business plays a key role in its tech transition. This quarter, global advertising revenue surged 53% from a year ago, Walmart said.

As the world’s largest retailer, Walmart’s earnings report is always closely scrutinized. But the lack of official government spending data over the past two months means investors and economists will be scrutinizing retailers’ earnings closer than usual for insights into U.S. consumers. And given Walmart’s recent market-share gains among more affluent households now make the brand a “closer read” on the broader consumer economy than most of its competitors, wrote Thomas Paulson, head of market insights at Advan Research.

Earlier reports from other retailers, including Home Depot, Lowe’s, and Target, have already given investors an inkling into how American households are doing heading into the end of the year. Shoppers are wary, but are still spending.

“As we approach the holidays, we know consumers remain cautious,” said Rick Gomez, Target’s chief commercial officer, on an earnings call Wednesday. “Sentiment is at a three-year low amid concerns about jobs, affordability and tariffs, yet they remain emotionally motivated. They want to celebrate with loved ones without overspending.”

Walmart’s decision to raise guidance suggests the company is seeing similar trends. The company highlighted that customers continue to seek value, but spending patterns were largely consistent with earlier this year. Executives also noted that holiday shopping was off to a good start.

“As we look at our customers and members here in the U.S., they’re still spending, with upper and middle-income households driving our growth,” McMillon said on an call with investors.

Management said they were keeping an eye on some “pockets of moderation.” Lower-income families, in particular, have been under additional pressure in recent weeks, McMillon added.

Walmart’s focus on everyday low prices has made it a go-to for value-seeking consumers across the income spectrum. The company said it continued to gain market share this quarter across income cohorts. Currently, the company has about 7,400 active price rollbacks in the U.S., half of which are in food.

“Walmart is better insulated that just about anybody given the value proposition that we have,” Rainey said. “If pocketbooks are being stretched and consumers are being choiceful and value-seeking, it stands to reason, if there’s more pressure on the consumer, they’re only going to become more so.”

Write to Sabrina Escobar at sabrina.escobar@barrons.com