A mixed picture for retailers as bargain-hunting shoppers pick their spots

FILE PHOTO: A sale sign greets shoppers at a retail store in California

By Deborah Mary Sophia

(Reuters) - U.S. retailers' earnings over the past month have signaled that customers are spending on discounted apparel, small home projects and beauty products even as they slashed other discretionary purchases with prices still elevated.

Retail sales in the U.S. rose more than expected in July with strong wage gains underpinning consumption, but the benefits have not been uniform across the sector.

Discount apparel chains TJX Cos and Ross Stores and cosmetics retailer Ulta Beauty have raised their annual expectations, while others including Macy's and Kohl's have taken a more cautious approach.

Meanwhile, Walmart has remained a more evident winner, raising its annual outlook on robust demand for its low-priced groceries and health and wellness products.

"Consumers are looking for value - some are switching to private labels, some are buying more stuff on promotions," Edward Jones analyst Brian Yarbrough said.

"All the excess inventory allows off-price retailers to get some really good deals and then offer those great deals in the stores, which drives traffic," he said, pointing to the upbeat results at TJX and Ross Stores.

Sephora "performed exceptionally well" with strength in North America in the first half of the year, the beauty retailer's owner LVMH said last month.

"While cosmetics is a discretionary item, it's a bit more staple in nature. Despite higher inflation or a slower economy, most people that wear make-up are going to continue to wear make-up and use skin-care items or fragrances," Yarbrough said.

Retailers have also flagged the impact from Americans prioritizing experiences like movies, vacations and concerts over discretionary purchases.

Tempered forecasts from sportswear retailers Foot Locker and Dick's Sporting Goods also added to the mixed picture, with Dick's also citing an increase in organized retail crime and theft at stores.

Electronics retailer Best Buy posted upbeat quarterly results on Tuesday, and although the company trimmed the top end of its annual sales outlook, CEO Corie Barry said the industry would see "stabilization and possibly growth" next year.

Top two home improvement chains Home Depot and Lowe's also said demand remained firm in some business lines, such as gardening and outdoor projects, with Lowe's saying consumer sentiment was starting to improve.

"Consumers may be looking for deals or are more price-sensitive, priorities may have shifted, but they are definitely still spending," said Liza Amlani, principal and co-founder of consultancy Retail Strategy Group.

Inflation subsided further in July, as core inflation - the annual rise in prices excluding volatile food and energy components - fell to its lowest in nearly two years, according to the U.S. Labor Department.

"We've started to see consumer confidence begin to recover from recent lows (as inflation rates moderate)... we're hopeful that conditions can improve with time," Target's Chief Growth Officer Christina Hennington said in an earnings call earlier this month.

(Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)