In August, the U.S. retail sector presented a multifaceted performance. Retail sales for the month exceeded expectations, primarily driven by a sharp increase in gasoline prices, a consequence of production cuts enacted by Saudi Arabia and the OPEC+ alliance. This rise in gasoline prices translated into higher spending at gasoline stations. However, this surge impacted consumers' budgets, particularly as families prepared for the back-to-school season.

While there was a notable spike in retail spending on fuel, growth in expenditures on other items remained relatively modest. This suggests that Americans exercised prudence in their spending, possibly in response to the prevailing challenges of rising inflation and increased borrowing costs. Last month, the consumer price index rose 0.6% sequentially and 3.7% from the year-ago period, per the U.S. Department of Labor.

A Peek Into Retail Sales Numbers

August marked the fifth consecutive month of gains in retail sales. The Commerce Department reported a sequential increase of 0.6% in U.S. retail and food services sales for August, reaching a total of $697.6 billion. This followed a revised reading of a 0.5% increase registered in July. Impressively, August retail sales rose 2.5% from the year-ago period.

The Commerce Department's latest report reveals a diverse range of trends in retail sales. Motor vehicle & parts dealers saw a modest increase of 0.3% in sales on a sequential basis. Building material & supplies dealers experienced a slight uptick of 0.1%, while electronics & appliance stores reported a more substantial jump of 0.7%.

Food & beverage stores posted growth of 0.4%, whereas clothing & clothing accessories outlets saw a robust increase of 0.9%. General merchandise stores showed a modest 0.3% uptick, while gasoline stations witnessed a significant surge with a 5.2% increase in receipts. Sales at health & personal care stores rose 0.5%, while food services & drinking places saw a 0.3% increase.

However, the picture was less optimistic for furniture and home furnishing stores, where sales decreased 1%. Sporting goods, hobbies, musical instruments and bookstores reported a more substantial decline, with sales falling 1.6%. Miscellaneous stores also saw a decrease of 1.3%. Interestingly, non-store retailers reported unchanged sales last month, which may have been influenced by Amazon Prime Day sales events in July.

Past-Year Price Performance

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4 Prominent Picks

You may invest in Urban Outfitters, Inc. (URBN Quick QuoteURBN - Free Report) . This leading lifestyle product and services company seems a promising bet due to its solid business strategies and sound fundamentals. Management has been strengthening its direct-to-consumer business, enhancing productivity across existing channels and optimizing inventory levels. URBN’s strategic growth initiative, FP Movement, and store-growth endeavors are also impressive.

The Zacks Consensus Estimate for Urban Outfitters’ current fiscal sales and EPS suggests growth of 9% and 84.6%, respectively, from the year-ago reported figure. This Zacks Rank #1 (Strong Buy) stock has an estimated long-term earnings growth rate of 23.7%. URBN has a trailing four-quarter earnings surprise of 19.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Walmart Inc. (WMT Quick QuoteWMT - Free Report) is another potential pick. The omnichannel retail giant has been diligently working to further strengthen its already formidable presence in the market. The company has embarked on a series of strategic e-commerce initiatives, encompassing acquisitions, partnerships and significant improvements in its delivery and payment systems. Simultaneously, Walmart is committed to elevating its merchandise offerings, ensuring a diverse and appealing product assortment.

Walmart has a long-term earnings growth expectation of 6.6%. This Zacks Rank #2 (Buy) stock has a trailing four-quarter earnings surprise of 11.6%, on average. The Zacks Consensus Estimate for Walmart’s current financial-year sales and earnings suggests growth of 9.2% and 2.2%, respectively, from the year-ago reported numbers.

Investors can count on Ross Stores, Inc. (ROST Quick QuoteROST - Free Report) . The store expansion strategy, combined with the company's strong brand reputation and off-price retail model, positions Ross Stores for success in the dynamic retail landscape. The company has ambitious goals, aiming to reach at least 2,900 Ross Dress for Less and 700 dd's DISCOUNTS locations over time. By expanding its store network, the company strengthens brand visibility, captures new customer segments and unlocks potential sales growth.

This operator of off-price retail apparel and home fashion stores delivered a trailing four-quarter earnings surprise of 11.4%, on average. The Zacks Consensus Estimate for Ross Stores’ current financial-year sales and EPS suggests growth of 8.1% and 19.4%, respectively, from the year-ago period. ROST, which presently carries a Zacks Rank #2, has an estimated long-term earnings growth rate of 11.6%.

Sprouts Farmers Market, Inc. (SFM Quick QuoteSFM - Free Report) is also worth betting on. The company has crafted a reputation for itself within the grocery industry by consistently prioritizing key areas that resonate with consumers. The company’s focus on product innovation, emphasis on e-commerce, the expansion of private-label offerings and targeted marketing with everyday great pricing bode well. It has been lowering operational complexity, optimizing production, improving the in-stock position and updating to smaller-format stores.

The Zacks Consensus Estimate for Sprouts Farmers’ current fiscal sales and EPS suggests growth of 5.7% and 14.6%, respectively, from the year-ago reported figure. The company has an estimated long-term earnings growth rate of 9.3% This Zacks Rank #2 stock has a trailing four-quarter earnings surprise of 14.3%, on average.