Walmart Inc. raised its annual sales and profit targets on Thursday as the retail behemoth drew from price-conscious shoppers trading down to cheaper groceries, easing worries of softening consumer spending due to inflation.

Shares of the top U.S. retailer rose about 2.6% as it also reported better-than-expected results for the first quarter.

Walmart has been keeping grocery prices low to fend off competition from Target Corp. and Kroger even as the industry struggles with higher costs especially for labor.

As a result, sales at Walmart's U.S. stores open at least a year rose 7.4%, excluding fuel, in the first quarter ended April 30, beating expectations of a 5.25% increase.

"We see a continuation of trade down certainly as consumers focus on maybe lower price proteins or lower pack sizes, but we also see private brand penetration continue to do really well for us in the quarter," CFO John Rainey told Reuters.

The strong results are a stark contrast to smaller rival Target's bleak second-quarter forecast, which it blamed on weak consumer demand. Walmart forecast second-quarter results above expectations.

The retailer now expects full-year earnings per share in the range of $6.10 to $6.20 compared to the prior outlook of $5.90 to $6.05. Analysts on average were estimating a profit of $6.16 per share, according to Refinitiv data.

The company also forecast net sales to rise about 3.5%, higher than its prior outlook.

Online sales grew 26% compared with a 1% increase a year ago and a 17% surge in the previous quarter.

Operating income rose 17.3% to $6.24 billion in the quarter, while Walmart's adjusted earnings per share came in at a better-than-expected $1.47 per share.

"We leveraged expenses, expanded operating margin, and grew profit ahead of sales," CEO Doug McMillon said.

Gross margin fell 18 basis points as Walmart's major merchandise includes low-margin groceries. Still the decline was smaller than the 83 basis point drop in the previous quarter.

Net revenue rose 7.6% to $152.30 billion in the first quarter, beating estimates of $148.76 billion.