JCPenney, on the other hand, did not consult the consumer when it decided to eliminate hundreds of sales events in favor of everyday prices on most items. Doing away with coupons seems to have confused or alienated its customers, Cramer said, as its same-store sales dropped 18 percent in its latest quarter.
Listening to the customer seems to be working for Gap, Cramer said. For the first time, the company is investing heavily in marketing for its brands because it’s much more confident in its products. In turn, Gap reported strong earnings results on May 17. Its same-store sales were up 4 percent for the quarter. Comps improved for each of its brands, too.
Another difference between the two retailers, Cramer said, is that Gap is rewarding its shareholders. While JCPenney eliminated its dividend to protect a balance sheet that most people thought was in good shape, Cramer noted that Gap announced a huge buyback earlier this year. It also raised its dividend by 11 percent, which brings its yield up to 1.8 percent.
Despite the stock’s recent run, Cramer still thinks Gap is cheap, as it currently sells for 12.6 times next year’s earnings with a 10 percent growth rate.
So what’s the bottom line? JCPenney CEO Ron Johnson could learn a thing or two from Gap’s recent comeback, Cramer said. He thinks GPS is a buy, too, because its turn has only just begun.