Walmart's business looks to have stabilized after surging inflation for food and gas weighed on the company's guidance a few weeks ago.

The world's largest retailer revised its full year guidance for profits to drop 9% to 11% from a prior range for a 11% to 13% decline.

Walmart stock popped 4% in pre-market trading Tuesday following a 15 cents a share beat versus Wall Street profit estimates. Sales came in better than expected as well.

Yahoo Finance caught up with Walmart's well-regarded CFO John David Rainey (who joined from PayPal in April) for his quick take on the quarter and outlook. Here's an edited and condensed version of our chat:

On the state of the U.S. consumer:

“I'd say that what we're seeing is they are still relatively healthy. We've seen some changes in consumer behavior that I put in three categories. One is there's a trade down in both quality and quantity. So instead of buying deli meats, we're seeing things like canned tuna and chicken and even beans, as units were up over 25% in the quarter. They're buying smaller pack sizes to save money. We've seen an increase in the private brands growth effect, it's 2x for food what it was in the first quarter.”

On inventory levels:

“About 40% of the $11 billion increase [in inventory] is just related to higher prices, inflation. I think the problem is going to persist through the third quarter, and probably even bleed into the fourth quarter a little bit. But our hope is that as we come out of the end of the year, we are in a much better position as we go into the next fiscal year.”

On “solid” start to the back-to-school shopping season:

“I would probably characterize it as encouraging. I wouldn't say strong. I would say it's encouraging by some of the signs that we're seeing most notably in school supplies versus apparel at this point. But even as we get into the beginning weeks here of the third quarter, we see that those encouraging signs continue.”

On the impact of lower gas prices on consumers:

“So we've not seen a pronounced shift in our mix just yet, but we ended the second quarter a little bit stronger than what we expected. And we do kind of deduce that that's related to lower fuel prices. If you look at May and June, even the first quarter fuel prices were going up and we were seeing that's when the mix in our business was changing. As we got into the back half of July and fuel prices came down, we saw some more encouraging signs and general merchandise.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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