Cramer dubs Children's Place a 'fabulous' buy on weakness

  • "Mad Money" host Jim Cramer tracked Children's Place's positive drivers and anointed it one of his few "buys" in brick-and-mortar retail.
  • The apparel retailer outperformed most of its struggling sector in 2017, logging a 44 percent gain in just the last few months of the year.
  • With the stock ripe for a pullback, Cramer suggested investors buy in on any weakness given the retailer's lead vis-a-vis its competition, strong management and coming tax benefits.

It's not often that CNBC's Jim Cramer gives a positive take on a pure-play retail stock, but on Wednesday, he made an exception for one name that recently caught fire: Children's Place.

Shares of the children's apparel retailer didn't see much action for most of 2017. But in the last 10 weeks of the year, the stock caught fire, flying 44 percent as part of a larger retail comeback.

"What's really intriguing is not that the stock vaulted into the stratosphere when retail came back into style on the Wall Street fashion show, it's that the company managed to do so well for so long even when other retailers were struggling," the "Mad Money" host said.

With over 1,000 stores in the United States and Canada and another 168 overseas, mostly located in shopping malls, it came as a surprise to Cramer that Children's Place managed to shirk the "death of the mall" commentary that plagued retail for much of 2017.

Instead, Children's Place continued to deliver strong earnings, driven in part by turnaround efforts implemented by its CEO, Jane Elfers.

Under Elfers, the company reformed its inventory management system to get a better handle on merchandise, partnered with Amazon to sell its goods online, closed under-performing stores and started to license the Children's Place brand to overseas franchisees.

Elfers also ushered the company into selling apparel for older kids and tweens, which paid off in a big way.

The success of the company's tween initiative ties into its second key driver, Cramer said: the difficulty of buying clothes for kids online.

"Taking a 5-year-old shopping may be a harrowing experience, but if you want their clothes to fit, you've got to try them on," the "Mad Money" host said. "That means Children's Place is much less vulnerable to online competition than most other brick-and-mortar retailers."

Still, it was only in the second half of 2017 that the stock of Children's Place really started to reflect these tailwinds, Cramer said.

It began in September, when Morgan Stanley analysts issued a bullish report on the company after meeting with its management team, calling it "one of the few retailers prepared for how the world will change."

Then in November came Children's Place's third-quarter earnings report, which beat estimates on the top and bottom lines and boasted 5.1 percent same-store sales growth (a key metric for retailers that measures year-over-year sales growth by location).

The successful report hit the tape as it became clear Congress would be able to pass its sweeping tax bill, tagging on yet another tailwind for Children's Place, a domestic retailer that stands to benefit from seeing its tax rate cut.

Better yet, 2017's holiday shopping season was more robust than many expected, and Gymboree, Children's Place's chief rival, filed for bankruptcy in June and subsequently closed more than 300 of its stores.

So with opportunities aplenty, a stronger-than-expected holiday season under its belt and a relatively cheap 18 times price-to-earnings multiple, Children's Place could still have room to run in the new year, Cramer concluded.

"Bottom line: Children's Place is a terrific story, Jane Elfers is a dynamite executive, and every time the stock has sold off, it's turned out to be a fabulous buying opportunity," the "Mad Money" host said. "Given the monster run into the end of last year, maybe we see some profit-taking in the not-too-distant future like the pullback we got today, and all I can say is that any weakness in Children's Place is worth buying."

WATCH: Cramer recommends Children's Place on weakness

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