The 2 Best Retail Stocks to Buy and Hold No Matter What Tariffs Do

Ollie's reported Q4 fiscal 2025 net sales of approximately $779M (+17% YoY), opened a record 86 stores, grew its loyalty program to 16.6M members, acquired 63 former Big Lots locations, carries no long-term debt, and is funding accelerating buybacks; Wells Fargo upgraded the stock to Overweight with a $130 target (~36% upside). Five Below posted Q4 revenue of $1.73B (+24.3% YoY), comps +15.4%, adjusted EPS $4.31 vs $3.98 est, absorbed ~160bps of tariff-driven gross-margin pressure and guided FY26 sales $5.20–5.30B and adj EPS $7.74–8.25, while its stock has more than tripled from April 2025 lows. Key downside risks are renewed tariff escalation and Iran-related shipping disruptions that could re-compress margins and stress supply chains.

Analysis

Tariff-driven disruption is creating a persistent, liquid secondary channel for excess import-dependent inventory — a structural input advantage for closeout specialists whose marginal cost of goods falls as distortion events recur. That advantage is partly non-linear: each new macro shock (tariff tranche, shipping chokepoint, or mass bankruptcy) increases the supply of deeply discounted SKU lots, creating outsized FCF conversion for firms that can rapidly absorb and reprice those assortments.

Adaptability-focused retailers survive a different way: by compressing the linkage between unit cost and full-price sales through faster SKU turnover, licensing, and trend arbitrage. That reduces sensitivity to per-unit tariff pressure but amplifies exposure to forecasting error — licensing fees, trend obsolescence, and SKU-level markdowns become the new margin levers, meaning margin volatility can spike even if headline comps look healthy.

Key tail windows differ: shipping or Iran-related interruptions can jolt freight rates and availability inside 0–3 months, corporate tariff policy and supplier re-sourcing play out over 3–12 months, and structural re-shoring or supplier migration that erodes the liquidation pipeline is a 1–3 year risk. The most underappreciated reversal is not demand but supply normalization — if brands stop creating overhangs (through repackaging or overproduction) the closeout advantage collapses faster than multiples re-rate.

Net-net, the trade is between durable asset-light operational advantages in a disrupted market versus managements that have demonstrated tactical agility; the former wins if disruption persists, the latter if shocks abate and trend cycles hold. Position sizing and option structures should mirror these asymmetries: buy optionality into structural winners, sell (or hedge) against crowding in adaptability stories whose upside is already priced for perfection.

Key Decisions for Investors

• Long OLLI (structural closeout exposure): Buy 12–24 month LEAP calls or 1–2% NAV in shares with a 12–24 month horizon. Hedge with a 25–35% OTM put or put spread sized at ~30% of the long to cap drawdown if liquidation flow normalizes. Target: asymmetric 30–40% upside vs ~20–25% downside in a tariff-normalization scenario.
• Pair trade — Long OLLI / Short FIVE (equal notional, 12 months): Size each leg ~1% NAV to capture a spread that favors structural liquidation capture over trend-driven assortment. Stop-loss: 10% adverse move on either leg or re-balance when spread compresses by 50%. Expected R/R ~2:1 if tariffs persist and trend-item momentum rolls over.
• Tactical option trade on FIVE (12 weeks to 9 months): Sell a modest-size covered call or call credit spread near-term to harvest elevated implied volatility that reflects tariff uncertainty, or alternatively buy a 9-month put spread as insurance against a re-escalation of China tariffs. Keep exposure small (<=0.5% NAV) — downside from a renewed tariff shock is real and fast.
• Trigger-based monitoring (no position): Set alerts for (a) major tariff policy votes or White House announcements (3–12 month horizon), (b) shipping-rate spikes or Strait of Hormuz incidents (0–3 months), and (c) liquidation-arena supply signals (retailer bankruptcies, large overhang auctions). Use these triggers to add to OLLI exposure or to close the OLLI/FIVE pair.