Walmart hikes its outlook again as shoppers spend more outside the grocery aisles

Walmart raised its forecast on Tuesday, as its customers bought more discretionary merchandise, ordered more deliveries to their homes and started their holiday shopping.

The discounter now expects net sales will grow between 4.8% and 5.1% for the full year. That compares to its previous forecast for between 3.75% to 4.75% sales growth for the period. The updated outlook came as Walmart posted third-quarter earnings and revenue that beat expectations. 

In a CNBC interview, Chief Financial Officer John David Rainey said sales of general merchandise – outside of the grocery department – grew year over year for the second quarter in a row after declines for 11 straight quarters. Still, he said consumers are waiting to make those purchases until they see a compelling deal, especially as they pay more for food.

"We're expecting this holiday period to be very consistent with that," he said. "They're focused on price and value."

Here is what the big-box retailer reported for the period compared with Wall Street's estimates, according to a survey of analysts by LSEG:

• Earnings per share: 58 cents adjusted vs. 53 cents expected
• Revenue: $169.59 billion vs. $167.72 billion expected

Walmart shares climbed about 4% in premarket trading.

In the three-month period that ended Oct. 31, Walmart's net income increased to $4.58 billion, or 57 cents per share, compared with $453 million, or 6 cents per share, in the year-ago period. Revenue rose from $160.80 billion in the year-ago quarter. 

Comparable sales, an industry metric also known as same-store sales, jumped 5.3% for Walmart and 7% at Sam's Club, excluding fuel.

Customers visited Walmart's stores and website in the U.S. more and tended to spend more when they did compared to the year-ago quarter. Walmart U.S. transactions rose 3.1%, and average ticket increased by 2.1% year over year. 

E-commerce sales rose 22% in the U.S., with gains coming from curbside pickup and home delivery, along with growth in Walmart's advertising and third-party marketplace businesses.

Walmart shoppers have also been willing to pay more to get their purchases faster, Rainey said. For the past two quarters, 30% of customer orders in the U.S. have come with an extra fee to get delivery within a shorter timeframe, like within one hour or within three hours.

He said Walmart's e-commerce business is "getting very close to profitability because we're able to use some of the cost of delivery with these incremental fees that customers are willing to pay for convenience."

Walmart, the nation's largest retailer, delivered its latest sales results and read on U.S. consumers as investors gauge sentiment and weigh the outlook for the most crucial shopping season of the year.

Retailers, including Walmart, are contending with a mixed bag of factors this holiday season. Inflation has moderated, with gas prices declining and grocery inflation remaining low year over year. Fears of a dragged-out process to determine the winner of the U.S. presidential race never materialized.

Yet President-elect Donald Trump's proposal for tariffs on imports from China and other countries has fueled fresh concerns about prices rising again. The holiday season is also shorter this year and parts of the U.S. have had unseasonably warm weather, two dynamics that could hurt retailers.

Rainey said tariffs could force Walmart to increase prices, but said it's too soon to say what merchandise may get more expensive. 

"We never want to raise prices," he said. "Our model is everyday low prices. But there probably will be cases where prices will go up for consumers."

He said about two-thirds of the items that Walmart sells are made, grown or assembled in the U.S., which reduces the tariff risk for those goods. And he added that Walmart, like other retailers, has been trying to diversify where it imports goods. 

"We've been living under a tariff environment for seven years, so we're pretty familiar with that," he said. "Tariffs, though, are inflationary for customers, so we want to work with suppliers and with our own private brand assortment to try to bring down prices."

Holiday spending is expected to increase this year, but at a modest rate. The National Retail Federation, a retail trade group, said it expects holiday spending in November and December to increase 2.5% to 3.5% compared with 2023, to a range between $979.5 billion and $989 billion. That would be lower than the 3.9% year-over-year jump from the 2022 to 2023 holiday season, when spending totaled $955.6 billion.

Rainey said the holiday period is "off to a pretty good start." 

He said items like TVs, Apple AirPods, Beats headphones and even tires have been selling. On the other hand, clothing and other weather-dependent purchases like space heaters have been slower because of unseasonably warm weather in parts of the country.

Some of the general merchandise gains indicate that consumers are feeling relief from inflation, but some also have to do with Walmart's strategy, he said. The company has deepened its assortment of toys, home goods and more through its third-party marketplace. 

As of Monday's close, Walmart shares are up nearly 60% this year, more than the S&P 500's approximately 24% gains during the same period. Walmart's stock closed on Monday at $84.08, bringing the company's market value to $675.86 billion.