Retailers are overhauling their operations as technology redefines the shopping experience. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry has pulled back by 3.7%. This performance is a stark contrast from the S&P 500’s 6.4% gain.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one resilient consumer stock at the top of our shopping list and two we’re swiping left on.

Two Consumer Retail Stocks to Sell:

Five Below (FIVE)

Market Cap: $4.94 billion

Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ:FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.

Why Does FIVE Worry Us?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Modest revenue base of $3.82 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Underwhelming 10.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging

Five Below’s stock price of $89.89 implies a valuation ratio of 19.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why FIVE doesn’t pass our bar.

Shoe Carnival (SCVL)

Market Cap: $609.8 million

Known for its playful atmosphere that features carnival elements, Shoe Carnival (NASDAQ:SCVL) is a retailer that sells footwear from mainstream brands for the entire family.

Why Is SCVL Not Exciting?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Revenue base of $1.22 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. ROIC of 14% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up

At $22.22 per share, Shoe Carnival trades at 23.7x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SCVL.

One Consumer Retail Stock to Watch:

Ollie's (OLLI)

Market Cap: $6.07 billion

Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ:OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.

Why Does OLLI Stand Out?

1. Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
2. Comparable store sales rose by 4.3% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
3. Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share

Ollie's is trading at $99.20 per share, or 27.9x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

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