Woolworths Group Ltd (ASX: WOW) shares are charging higher on Thursday morning.

At the time of writing, the retail giant's shares are up almost 2% to $32.15.

This follows the release of the company's eagerly anticipated third quarter sales update before the market open.

Woolworths shares higher on strong Q3 update

For the three months ended 6 April, Woolworths reported a 3.2% increase in group sales over the prior corresponding period to $17.3 billion. This was comfortably ahead of the consensus estimate of $16.6 billion.

The key driver of this growth was Woolworths' core Australian Food division, which posted a 3.6% lift in sales to $13.05 billion.

Management notes that supermarket sales were up 3.4% or 4.8% excluding tobacco. Whereas WooliesX, the company's digital arm, was a standout performer with sales up 15.6% to $2.39 billion.

This was driven by 16.3% growth in eCommerce and rising engagement with its rewards and media platforms. Online sales now represent 14.1% of total supermarket sales, up 157 basis points on the prior year.

The company's B2B segment delivered 6.3% sales growth, reaching $1.44 billion, supported by strong performance from PFD Food Services, export meat, and Woolworths' third-party supply chain business.

Meanwhile, New Zealand Food sales rose 4.8%, with solid item growth supported by the Minecraft Cubeez collectibles program as well as improved availability and quality in Meat and Fruit & Vegetables.

Woolworths' W Living division saw total sales fall 2.7% to $1.22 billion, due largely to the impact of the divestment of 41 Petstock retail stores and 25 veterinary clinics which were still owned in the prior year. BIG W sales only slipped 1.5%, and on an Easter-adjusted basis, sales actually rose 1.9%, with stronger volumes and better customer engagement pushing item growth up nearly 5%.

Management commentary

Commenting on the quarter, Woolworths's CEO, Amanda Bardwell, said:

With only two months until the end of our financial year, we remain focused on the priorities set out in February which include improving our retail fundamentals in value, availability and range, simplifying the way we work and unlocking the full potential of the Group. While the market remains competitive and consumer outlook uncertain, we are making progress in these areas and will provide a more detailed update at our full year results in August.

Cost of living remains a concern for customers, however customer scores were largely stable during the quarter and sales growth rates improved modestly across the Group. Australian Food total sales increased by 3.6% with eCommerce growth of 16.3%. Our focus on value through lower prices for customers in Long Life groceries has led to the fifth consecutive quarter of average price declines, excluding Tobacco .