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Cramer continued his search for what he’s calling the discount king, or the best cheap retailer, by highlighting Big Lots on Wednesday. The company just delivered an earnings beat and raised its 2009 guidance, something only Apple [AAPL
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] and Salesforce.com [CRM
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] have done this earnings season.
The economy finally may be turning up, but Cramer thought there was still money to be made in off-price retail. All week, he’s sized up the best possible plays on the sector, including TJX Cos. [TJX
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] and BJ’s [BJ
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], with a plan to pick a winner on Thursday. Big Lots is definitely in the running.
Big Lots [BIG
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] operates 1,350 stores in 47 states, with the highest concentration in California, Florida, Texas and Ohio. Customers can find anything from food, health, beauty and pet products to home wares to electronics and appliances to seasonal and garden items to toys, jewelry and apparel. The business model is similar to that of TJX Cos. – selling closeout and overstock merchandise – but Big Lots’ diverse product mix offers a sense of security that TJX lacks.
How so? Cramer mentioned on Monday that he was concerned about retailers’ lean inventories these days and how that could affect TJX. After all, if brand-name stores have no merch to dump, then the discounters will have to pay more to fill their racks. Big Lots, however, deals with more than just apparel dealers, so it’s not in the same difficult position as TJX. That’s one reason why management predicted a stronger second half of 2009.
As for retail’s key metrics – same-store sales, inventories and margins – Big Lots showed promise. While same-store sales were down 2.4% for the quarter, the company said that number would climb to down 2% to flat for Q3 and slightly positive for Q4. Inventories were down 4% compared to the same period last year, which allows for stronger pricing, and gross margins were at 40%. Compare that to TJX’s weaker 25%.
Cramer’s big gripe about Big Lots is what to him seemed like a poor shopper experience. His local store was sloppy and disorganized, he said. But the company is taking steps to correct this through its “Food Refresh” program. The initiative includes measures to change the fixtures in half the stores to emphasize cleanliness and better present the food offerings, and it’s supposed to be done by the end of this quarter.
Big Lots’ stock is cheap, trading at just 12.5 times 2010 earnings versus Costco’s [COST
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] 18.7 times. And even though the stock has soared 50% since the early March lows, Cramer kept it in the running for discount king because TJX is up 70% over that time.
So, do you buy it? Check back Thursday for Cramer’s final call.
Call Cramer: 1-800-743-CNBC
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