Thanksgiving Day. It signals the beginning of the holiday shopping season, a time of year when retailers do battle to secure a big chunk of their annual revenue. For some, it represents as much as 30% of the yearly haul so it’s important that every employee brings their A game; the entire year hangs in the balance.
This holiday season, as with every holiday season, there will be winners and losers. We can speculate which retail stocks are going to benefit and which aren’t, but in the end, it’s up to shoppers to decide the fate of retailers coast to coast.
Investors can do themselves a favor by concentrating less on who will win this year’s month-long dash to Christmas but instead focus on identifying the best retailers at any time of the year. Once you’ve done that, simply buy those retail stocks and enjoy the holidays.
In the chart below, I’ve listed five retailers I think are worthy of consideration as the “Best Retail Stock on the Market.”
Unfortunately, I can only pick one, so to make it a little easier I will restrict my five selections to the 96 holdings of the SPDR S&P Retail (ETF) (NYSEARCA:XRT), the largest retail ETF in the U.S.
Best Retail Stock on the Market
| Retailer | Market Cap | Net Income |
| TJX Companies Inc (NYSE:TJX) | $50.6B | $2.3B |
| L Brands Inc (NYSR:LB) | $19.9B | $1.2B |
| Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) | $15.7B | $360M |
| Nordstrom, Inc. (NYSE:JWN) | $10.1B | $424M |
| Urban Outfitters, Inc. (NASDAQ:URBN) | $4.6B | $231M |
Source: Morningstar
While all five of these companies are worthy of the title, I have to go with the one retail stock I believe has the best chance of outperforming its peers, the XRT and the S&P 500 over the next three to five years.
The Best Retail Stock on the Market is … Nordstrom.
To understand why I feel this way, you’d have to live in Toronto, where I live, because one walk through its new 233,000 square foot store in the Toronto Eaton Centre tells you all you need to know about its decision to expand to Canada.
It was the right decision, and shareholders will benefit for years to come from this bold move that got underway around the same time Target Corporation (NYSE:TGT) decided to close all 133 of its Canadian stores.
Nordstrom has taken its time entering the Canadian market by opening just five stores (Ottawa, Calgary, Vancouver and two in Toronto) since September 2014 when it opened its first location in Calgary. Focusing on delivering what its Canadian customers want, it has been able to provide consumers north of the border with a fantastic shopping experience.
My father worked for the Eaton’s department store chain when it opened the Eaton Centre store (where Nordstrom’s now is located) in 1977. It changed the downtown core. Unfortunately, Eaton’s went bankrupt in 1999, and Sears Canada, who took over the lease, gradually let it run down until they closed the store in 2013.
With the Nordstrom opening in October at the north end of the mall and the Saks opening earlier in the year at the south end, the Eaton Centre’s never been busier. It’s a great location for the department store that will have a big impact on its future top and bottom line, something that’s been improving as of late.
In the third quarter ended Oct. 29, 2016, Nordstrom delivered revenue growth of 7.2% along with same-store sales growth of 2.4% and adjusted earnings per share of 84 cents, a 100% increase year-over-year.
As a result of this improvement, it expects net sales to increase 3.5% in fiscal 2016 with adjusted earnings per share of at least $2.85, 10% higher than its previous outlook. With the Eaton Centre and its other Toronto location open for the entire fourth quarter, it’s entirely possible that $2.85 could end up being higher than $3 per share.
Nordstrom has always provided customer service that’s head-and-shoulders above most other retailers. Now, it’s reigniting sales at both its physical locations (full-line and Nordstrom Rack) and online suggesting it soon could be testing its all-time high of $83.16, reached in February 2015.
One of these other retail stocks might be more profitable at the moment but for my money, JWN is the best retail stock on the market.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
