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A Walmart store in Encinitas, Calif., on April 13, 2016.Mike Blake/Reuters

Walmart WMT-N on Thursday said U.S. consumers are acting more cautious with spending as the holiday season gets under way, even as the largest U.S. retailer raised its forecast for sales and profit for the year.

The company’s shares fell 7.7 per cent Thursday as executives said higher interest rates and dwindling household savings have made sales “somewhat uneven” over the past two months.

Walmart’s bigger focus on groceries has provided a bulwark against the broad slowdown in discretionary spending with more than half of the company’s merchandise comprising of food and other daily essentials.

Walmart’s Chief Financial Officer John David Rainey told Reuters the company saw shoppers slow purchases in the second half of October, but rebound in early November on items including apparel and home goods that have been out of favour for most of the year.

“This gives us reason to think slightly more cautiously about the consumer versus 90 days ago,” Rainey said on the conference call.

While shopper visits rose 3.5 per cent in the third quarter, shoppers are “still very choiceful and using discretion,” and are waiting for promotional events like Black Friday and Cyber Monday, he said, echoing comments made by Target CEO Brian Cornell on Wednesday.

U.S. consumer spending accounts for roughly 70 per cent of the economy, and core U.S. retail sales rose just 0.2 per cent in October as spending ebbed due to higher borrowing costs and the lingering effects from inflation. Wholesale food inflation has started to decline, portending possible relief for consumers in coming months.

The U.S. Federal Reserve has raised short-term lending rates by more than 5 percentage points since March 2022, and that has had an associated effect on consumer lending and mortgage rates, which are also higher.

Retailers have warned that this year’s holiday season will be less robust than in years past. In addition to Walmart, retailers Children’s Place and Bath & Body Works also reported mixed quarterly results Thursday. Macy’s had strong results.

“With this type of volatility, we think it does make sense for Walmart to be slightly more cautious on the consumer heading into the holiday season, " D.A. Davidson analyst Michael Baker said in a note.

But the forecast, which according to Art Hogan, chief market strategist at B Riley Wealth, missed the midpoint of Wall Street estimates, sets up sets up Walmart for “another beat,” Baker said. Walmart has used its size and scale to keep prices low despite inflation, drawing in not just low-income shoppers but also more high-income consumers looking for cheaper options to stretch their budgets.

Prices on food and consumables have been “more in check” than the prior year while prices of general merchandise goods like apparel and home goods have fallen between three and six per cent, Rainey said.

Falling prices in general merchandise will allow Walmart to cut prices for the holiday season, executives said on the conference call.

Walmart shares had hit an all-time high of $169.91 on Wednesday following results from rival Target TGT-N, which projected fourth-quarter earnings above estimates.

Walmart’s shares are up nearly 20 per cent this year and are relatively more expensive than peers.

Walmart now expects fiscal 2024 earnings per share between $6.40 and $6.48, up from its prior forecast of $6.36 to $6.46.

It sees comparable sales for the full year rising 5 per cent to 5.5 per cent, compared with an increase between 4 per cent and 4.5 per cent estimated previously.

Comparable sales, or sales at Walmart’s U.S. stores open at least a year, rose 4.9 per cent ended Oct. 31, excluding fuel, above estimates of 3.35 per cent. Online sales rose 15 per cent.

The company posted an adjusted profit of $1.53 per share in the third quarter. Analysts on average were expecting $1.52 per share.

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