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Don't Return J. Crew Yet

J. Crew Group dropped 77 cents, or almost 3%, Wednesday in response to its reported 12% loss in second-quarter profit after yesterday’s bell and lowered full-year guidance. Still, Cramer said the stock’s a buy.

It all comes down to two things: CEO Mickey Drexler and a hiccup in the company’s web operations that caused the missed quarter. Once these two factors are put into perspective, it’s easier to see why J. Crew would be so favorable to Cramer.

Don’t get us wrong. Retail is awful right now, and that definitely played a part in the earnings miss. But Cramer seemed convinced that JCG’s massive overhaul in its web operations hurt the company’s overall positive product mix, inventory levels and store groups (Crewcuts for kids, and the edgy Madewell line), and as a result the earnings.

What happened? The J. Crew’s website broke down as a result of the upgrade – shutting down completely on June 28, a key weekend day – and that took a chuck out of the company’s sales numbers. After all, this is a catalogue company – both online and off – first, and a retail outlet second. Without this setback, Cramer said JCG could have outdone favorites TJX and Urban Outfitters.

Anyone who works for a web firm or a company that depends heavily on web traffic knows what a terrible experience these upgrades can be and the trouble they can cause. Cramer himself has suffered through them at TheStreet.com. But he’s convinced that once these problems work themselves out – in about two quarters, Cramer said. – JCG will be back on track.

Also, Mickey Drexler gets Cramer’s full endorsement. Back when he was running Gap, he made it cool. He took a tiny two-store chain called Banana Republic and helped grow it into the brand it is today. Drexler also created Old Navy. He knows this business, and he’s bringing that expertise to J. Crew.

This stock should go to $35, almost another $10 higher, Cramer said. But not right away. He thinks this is a 12-month outlook, not a one-month. The web problems will still cut into this quarter, but maybe not so low as J. Crew’s recently revised guidance. And there will probably be some tax-loss selling by all the people who took at hit from this stock. Basically, you have some time to find the right entry point because there’s a good chance JCG will go down even further in the near future.

But eventually circumstances will improve for this company, and the 12 “hold” calls on the stock will require an upgrade. And that’s when you consider ringing the register on JCG.





Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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