Amid persistent inflation, investors have been nervously eyeing how consumer spending pans out during the crucial holiday season, when retailers make more than a third of their annual profits.

“In this period of macroeconomic uncertainty… we are well equipped to continue gaining market share in an environment where consumers need to stretch their dollars further,” Chief Financial Officer John David Rainey said on an investor call.

The world’s largest retailer by sales forecast holiday quarter U.S. same-store sales, excluding fuel, to increase about 3%, below estimates of a 3.4% increase.

Rainey said the guidance assumes a more promotional holiday period and that consumers could slow spending, especially in general merchandise categories, due to continued rising costs for food.

The company’s comments follow those of FedEx and Amazon, which have also warned of muted holiday season demand in recent weeks. Home improvement chain Home Depot on Tuesday left its annual forecasts unchanged, adding to holiday season concerns amid a slowing housing market. 

For the full-year, Walmart forecast net sales to rise 5.5%, above its previous forecast of a 4.5% increase.

Walmart also said it was better prepared on the inventory front with many of the challenges it faced earlier this year “cleared out.” The company’s inventories were up 13% at $65 billion on a value basis, which CFO Rainey said was 70% inflation driven, but on a unit basis was “much lower.”

Walmart’s strong results prove its operational model excels during times of economic strength … Walmart is a counter-recessionary retailer,” Guruecommerce

Food inflation

While U.S. consumer prices rose less than expected in October, a recent survey shows that consumer sentiment slumped in November and inflation expectations had edged up.

CFO Rainey told Reuters that the company continued to see a mid-teen level of inflation in food, while general merchandise inflation eased “quite a bit.”

The continued rise in food prices meant that Americans are trading down from higher quality proteins to beans, hotdogs, peanut butter and store-label brands, he added.

This helped it post a rise in third-quarter comparable sales, even though profit margins were impacted. Comparable sales at its Walmart U.S. business rose 8.2%, in part helped by a growing horde of households making $100,000 plus shopping at its stores, company executives said.

Walmart, however, swung to a third quarter loss of $1.8 billion due to $3.3 billion in legal settlements to resolve U.S. state and local lawsuits accusing it of mishandling opioid pain drugs.

“This settlement is a net positive as it removes a large unknown from the street,” Brian Mulberry