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Cramer: Ascena Stays True to the Retail Turnaround Trend

In these modestly recovering markets, investors are allowed to hope for the best, Jim Cramer said Thursday on CNBC's "Mad Money." But they also need to prepare for the worst.

The "Mad Money" host is all about domestic security these days, and this time he's turning his attention to AscenaRetail. Formerly known as Dress Barn, the retailer only does business in U.S. and Canada, and Cramer said the stock carried out "one of the greatest turnarounds" he's ever seen. The firm has a knack for buying up under-exploited brands and whipping them into shape, he said. "This process is a proven money maker."

Ascena has also been gearing up to target different demographics, with brands like the original Dress Barn, Maurices and Justice. Thanks to these deals, Cramer said, Ascena is now a dominant specialty store player. "And this is the kind of bricks-and-mortar retail business that can't be poached by Amazon or other online players," he added. "Because people like to buy their clothes in person."

To top it off, the company recently announced plans to acquire Charming Shoppes — a leading player in plus-size women's clothing. Ascena spiked 10 percent right on the heels of that announcement, taking the stock from $19 to $21 per share. And when the stock of an acquiring firm jumps on the news of a takeover deal, Cramer said, investors know they've got something good going on.

Since then, the markets have dragged Ascena down right along with them — a move Cramer said makes no sense. "If there's one thing these guys know how to do," he said, "it's how to do deals."

Back in 2005, Ascena saw an incredible surge of 175 percent from the day before it announced plans to buy up Maurices to one year after the deal was completed. Likewise, in 2009, Ascena stock rallied 97 percent from the day before the Justice deal was announced to 12 months after the deal was closed. The company was able to do all of this because it under-promised and over-delivered on earnings. And as the firm gears up for its latest acquisition — that of Charming Shoppes — it should be able to do the exact same thing all over again.

But besides the flurry of M&A activity, Ascena has also been able to reinvent itself by gradually rolling out new merchandise in a way that didn't shock their customers. And unlike J.C. Penney, the company didn't abolish its coupons. Ron Johnson, the CEO of J.C. Penney, should have understood the two key components of a successful retail turnaround — understated expectations and a slow and steady mode of rebranding, he said.

The bottom line: "Ascena has managed to turn a dowdy old retailer like Dress Barn into the cornerstone of a terrific portfolio of brands," he said. And given the company’s phenomenal M&A track record, Cramer suggested buying the stock before the deal closes later this month.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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

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