The retail sector is one of the most difficult to succeed in because there are so many competitors. It's also going to get more difficult as more online retailers come onto the market, particularly when Amazon arrives.
However, that doesn't mean all retailers can't grow. There are a select few that have been growing and have the potential to grow further over the next couple of years.
In my opinion the below three stocks are some of the best retailers on the ASX:
Retail Food Group Limited (ASX: RFG)
Retail Food Group is the $1.25 billion food outlet franchisor of chains like Donut King, Gloria Jean's and Brumby's Bakery.
It's been one of the most consistent stocks on the ASX having grown its dividend every year for 10 years and the share price has grown by 426% in that time.
It could continue growing strongly because it has plans to grow its network by about 1,000 outlets to a total of 3,500 over the coming years.
It's currently trading at 17.2x FY17's estimated earnings with a grossed up dividend yield of 5.57%.
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting is the Bunnings of baby products with its large stores having everything a baby could need. It has a market capitalisation of $296 million.
As Australia's population and number of births continue to rise, demand for Baby Bunting's products will continue to grow.
Pleasingly in FY16 it grew revenue by 31.4%, net profit after tax by 55.8% and the number of stores by 16% (which was 5 stores). It could keep growing because it has plans to grow its network from 36 stores to 80.
Baby Bunting is trading at 26.5x FY16's earnings with a dividend yield of 3.81%.
Nick Scali Limited (ASX: NCK)
Nick Scali is the $502 million retailer of higher end home furniture. Nick Scali has created a successful model where its stores are just showrooms and the products are shipped from the country of origin once the customer has made a purchase.
In FY16 Nick Scali grew revenue by 30%, net profit after tax by 53% and the ordinary dividend by 53%. It could have another strong year in FY17 as it plans to continue growing its network from 47 to an eventual 75.
Nick Scali is trading at 19.1x FY16's earnings with a grossed up dividend yield of 6% (including the special dividend).
Foolish takeaway
Out of these three retail stocks I prefer Retail Food Group as it has the biggest growth plans and is the least likely to be affected by internet retailing. If retail stocks aren't your preference then you should consider these very reliable blue chips instead.
