Walmart Beats Earnings Expectations and Raises Guidance. The Stock Falls.

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

Walmart delivered strong third-quarter earnings, beating Wall Street’s top- and bottom-line expectations while raising guidance for the fiscal year. Yet the stock was dropping Thursday as investors expected even more from the world’s largest retailer.

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 fiscal-year guidance 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 fell 2.4% in premarket trading Thursday despite the earnings beat. It’s not an altogether surprising reaction. TD Cowen analyst Oliver Chen had cautioned that given the shares’ lofty valuation—Walmart stock trades at 35 times the next 12 months earnings, hovering around 10-year record highs—it was possible that investors have a muted response to even a solid print from Walmart as expectations are high.

Indeed, Walmart shares have closed in the red following the company’s past three earnings releases, according to Dow Jones Market Data, despite topping earnings estimates in all but the August report. Walmart stock is up about 11% this year, slightly underperforming the S&P 500’s 13% increase.

Bulls say Walmart is worth the premium 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 ongoing 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. “Walmart is setting a new standard for omnichannel retail by integrating automation and AI to build smarter, faster, and more connected experiences for customers, while enabling our associates to deliver even greater value at scale.”

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 that 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: they’re 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. In emailed comments to Barron’s, the company highlighted that customers remain value seeking, but spending patterns were largely consistent with earlier this year.

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. Investors will be listening to the company’s earnings call, scheduled for 8 a.m. Eastern, for more insights into the consumer.

There is one more wild card in the mix during the earnings call that could influence how the stock trades after the report: Walmart’s coming CEO change. The company announced on Friday that longtime CEO Doug McMillon 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.

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