As hundreds of designers unveil their spring lines during New York Fashion Week, Jim Cramer thought it would be a good time to look at some retail stocks poised to push higher.
“Lately retail has been on fire, but if you want to know the difference between a good retail stock and a great one, it comes down to execution, and not just any kind of execution,” said Cramer on CNBC's "Mad Money." “In this business, the strongest performers are the ones with the best eyes for style.”
In Cramer’s opinion, the following five retailers are getting the trends right and their stocks are being rewarded for it. In turn, he thinks these stocks still have room to run.
Michael Kors (KORS)
To Cramer, Michael Kors is “one of the hottest apparel plays out there.” After all, the retailer went public in December at around $20 a share. Today, its stock currently trades around $53 a share.
“Michael Kors is a luxury player with a focus on accessories, including handbags, and the company’s latest quarter was out of this world,” Cramer said, noting it beat earnings estimates by 14 cents off a 20-cent basis while revenues increased by 70.7 percent year-over-year and same-store sales in North America increased by 24.2 percent. “Even better, KORS gave upside guidance for the next quarter and the rest of the year.”
(Related: Hints of Spring—and Bondage—At Fashion Week)
It’s not unusual for Michael Kors to report strong earnings, Cramer said. The retailer has produced strong results, he said, because it has been launching new stores to build brand awareness while “nailing the fashion,” too.
Michael Kors’ stock ended sharply lower Monday after the company filed a $20 million share secondary.
“Given how strong the sales and earnings are, I urge you to buy the stock on the deal and if you can't get in, buy it in the open market,” Cramer said. “It's a terrific entry point in a truly terrific stock.”
Gap is undergoing a remarkable turnaround right now, Cramer said, making its stock worth considering.
“After spending years in the wilderness, where Gap and its other two concepts — Old Navy and Banana Republic — were all regarded as pretty much the antithesis of fashionable, Gap has now gotten its groove back,” Cramer said, noting its stock has climbed some 29 percent in just four months. “It’s taken a long time, but the turn is clearly happening.”
In Cramer’s opinion, CEO Glenn Murphy has made some good moves lately, including “terrific new hires” and improvements to the company’s merchandise in terms of the color and fit of its clothes.
“Now that Gap’s gotten the product right, they’re advertising heavily to get people back into the stores,” Cramer said. “And it’s working.”
On August 16, Gap reported strong quarterly earnings and raised its full-year guidance. Also, its August same-store sales increased by 9 percent while analysts were only looking for an increase of 5.5 percent.
Based in Seattle, Nordstrom is a high-quality luxury department store with 231 locations in 21 states. Cramer noted Nordstrom continues to take market share, too, because it has more exposure to some of the hottest categories — footwear, accessories and beauty — than any other department store.
Nordstrom has also developed partnerships with several popular brands, such as Peek, Bonobos and Topshop. It also benefits from a rapidly growing Nordstrom Rack outlet business. In turn, Nordstrom’s August same-store sales increased by 21 percent while analysts had only expected an increase of 11.2 percent.
Urban Outfitters (URBN)
Urban Outfitters is another comeback story worth watching, Cramer said.
“For most of last year, it seemed like Urban just couldn’t get the fashion right no matter how hard they tried,” Cramer said. “Their merchandise was just not what the consumer wanted.”
In January, founder and Chairman Richard Hayne replaced Glen Senk as CEO. Right away, Hayne made changes to the company’s brand management, controlled inventory and improved merchandise. The changes seem to be working so far, Cramer said.
On August 20, Urban Outfitters reported terrific quarterly results. It delivered a 9-cent earnings beat off a 33-cent basis on higher-than-expected revenues that rose 11 percent year-over-year. Its inventory per square foot was down by 5 percent, too, while gross margins improved.
“I think we’ll hear more about this turn at Urban’s analyst day on September 27, so you might want to buy this one ahead of that catalyst,” Cramer said.
Lululemon, a yoga apparel maker and retailer, reported a fantastic quarter on Friday. In turn, its stock has climbed 12 percent higher.
The Vancouver, British Columbia-based company currently has 189 locations, but this fast-growing retailer plans to open 35 stores and two new outlet stores this year. Cramer noted the company has a huge proprietary edge, which means it could post a 15 percent increase in same-store sales in the latest quarter. Its yoga pants use the latest technology, which allows the company to charge around $100 for a single pair. Demand for its products doesn’t seem likely to fall anytime soon, Cramer said.
“This is not a fad — it’s a trend — and I think you’ll be able to ride it for a long time as long as you get in at a good entry point,” Cramer said. “Beware: the short-sellers hate this company and are constantly saying it is slowing down, to which I say, everyone else in the industry would pray for such a slowdown.”