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

Ollie’s reported strong fiscal 2025 momentum: opened a record 86 stores, Q4 net sales rose ~17% YoY to ~$779M, loyalty members reached 16.6M, carries no long-term debt and funds buybacks; Wells Fargo upgraded to Overweight with a $130 PT ( ~36% upside). Five Below rebounded after tariff shocks with Q4 comps +15.4% YoY, revenue +24.3% to $1.73B, adjusted EPS $4.31 vs $3.98 est, and fiscal 2026 guidance of $5.20–5.30B sales and $7.74–8.25 adj EPS. Key risks remain tariff unpredictability and Iran-related shipping disruptions that could compress margins despite current strong operating performance.

Analysis

The primary structural winner from elevated tariff and shipping disruption risk is any business that can convert upstream inventory dislocations into supply at a large markdown and flow that into high-turn physical retail — the arbitrage sits between brand margin compression and secondary-market clearance. That arbitrage is scale-sensitive: players with existing clearance pipelines, centralized buying, and flexible shelf assortments can capture incremental gross-margin delta of low-to-mid hundreds of basis points over 6–18 months as manufacturers prioritize cash over margin.

Second-order winners include logistics providers and liquidation marketplaces that feed closeout chains, and regional landlords in value-retail corridors where occupancy costs fall and tenancy improves; losers are high-import, low-margin specialty retailers whose pricing power is weakest and who face both input-cost and freight-rate shocks. A Iran/Strait-of-Hormuz escalation could spike ocean freight and insurance costs within weeks, flipping a modest tailwind into a material headwind for import-reliant assorters, while a negotiated tariff rollback would remove the liquidation pipeline within 3–9 months.

Trade execution should favor convex, asymmetric instruments: long-dated call exposure to the structurally advantaged closeout operator and option-defined longs for adaptable discounters, combined with hedges that pay off on tariff normalization or risk-off retail drawdowns. Monitor leading indicators — liquidation auction volumes, freight-rate indices, and branded overrun listings — as real-time validators of the thesis.

The consensus is underweight two risks: (1) durability of the liquidation supply if brands retool supply chains to avoid secondary-channel leakage (a 6–18 month corporate program can curtail flows), and (2) margin elasticity for trend-driven, import-heavy discounters if tariffs re-escalate; both are binary catalysts that could compress multiples far faster than fundamentals change, so position construction must protect against regime reversal.

Key Decisions for Investors

• Long OLLI via Dec-2026 LEAP calls (approx. 9–15 month tenor) sized 2–4% portfolio risk; target 30–40% upside to mean re-rating on sustained liquidation flow; hedge tail risk by selling shorter-dated call verticals (~3–6 month) to fund premium and reduce theta exposure.
• Long FIVE using a calendar or diagonal call spread (buy Dec-2026 15–25% OTM calls, sell nearer-term 3–6 month calls) to capture product assortment re-rating while monetizing near-term vega; size 1–3% portfolio, set mental stop if quarterly gross-margin contraction >200bps versus guide.
• Pair trade: Long OLLI / Short import-heavy discount peer (e.g., DLTR or XRT exposure) — equal notional for beta-neutrality over 6–12 months. Expect payoff if liquidation volumes rise; cap pair loss at 8–10% via stop limits or buy protective puts on the short leg.
• Event hedge: buy 3–6 month puts on OLLI or a small position in a freight-rate/stress ETF as insurance against a rapid tariff rollback or Strait-of-Hormuz de-escalation; cost should be <0.5% portfolio to preserve upside convexity while protecting against regime reversal.