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Cramer: Ulta, Five Below - Just how broken?

With Five Below slipping 5% and Ulta tumbling 20% on Friday, Jim Cramer said it's time to step back and reassess.

"Both stocks just got hammered," Cramer noted.

"When you see declines of this magnitude, you really should do some studying. You have to listen to the conference calls and compare them to the notes of what the analysts had been expecting," Cramer said.

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Ulta

Ulta, a beauty products retailer reported a disappointing fiscal third quarter and gave a weak forecast, citing softer retail trends that may continue into the holiday shopping season.

The company expects to earn between $1.07 to $1.10 per share for its fourth quarter on revenue between $853 million and $867 million. Analysts were anticipating earnings of $1.24 per share on revenue of $893.6 million.

Listening to the conference call Cramer said, almost immediately, he got very nervous.

"Just listen to these reasons that I pulled from what management had to say about the downbeat end of quarter and beyond: tougher than expected sales environment… heightened promotional environment… less certain consumer environment…"

Cramer doesn't like when retailers blame external issues for weakness. "To me that's says "wait a second."

That is, if a company can't own responsibility for its success or lack thereof, how can it possibly correct for it. Therefore, "I think Ulta could be a broken company. I don't like it," Cramer said.

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Five Below

Shares of Five Below tumbled after the company provided weak guidance for the fourth quarter.

Looking at the numbers a little more closely, for the fourth quarter, Five Below expects net earnings of $0.48 to $0.50 per share, adjusted earnings of $0.49 to $0.51 per share and sales of $214 million to $217 million. Analysts expect earnings of $0.52 per share on sales of $218.3 million.

In this case, Cramer isn't worried. He reminds that sales growth was still in the double digits.

Sales for the quarter grew 28 percent to $110.8 million from $86.6 million a year ago. It's just that analysts estimated for sales were higher at $112 million.

"Here's an historically conservative company that admitted it saw a little weakness around Thanksgiving time, but ultimately expected to be back on track for high growth shortly. To me this feels very much like one time glitch. I don't think Five Below is a broken company, just a broken stock that could easily mend."

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ULTA
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