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Plus-Size Profits From Plus-Size Retail?

Consumers these days aren’t alone in their hunt for value, Cramer said Tuesday. Retail companies are doing some shopping themselves, hoping to add to their wardrobes, so to speak. On June 25, Dress Barn announced it would buy Tween Brands for a 20% premium to the latter’s closing price the day before. The Mad Money host predicted more deals to come and speculated on who was the next likely takeover target.

Charming Shoppes would make a great addition, Cramer said, for any company looking to enter a niche but growing retail demo: plus-size women. The owner of Lane Bryant, Fashion Bug and Catherine’s is number one in plus-size specialty and intimate clothing and denim, as well as number two in regular plus-size apparel. Also, Charming Shoppes is at the start of a turnaround thanks to new management, so the stock doesn’t need a merger or an acquisition to move higher. That is key, because Cramer never speculates on a takeover unless the fundamentals are there first.

Beyond Charming Shoppes leadership positions in its group and its exposure to the trend of Americans getting, well, fatter, the company’s C-level suite is occupied by some of the industry’s top managers. Chairman Alan Rosskamm, former CEO of Jo-Ann Stores, steered the ship for nine months as interim CEO and cut costs and reduced inventory aggressively. Then three new heads were brought in to run Lane Bryant, Fashion Bug and Catherine’s.

Finally, Paul Fogarty took over as company CEO on April 3. Fogarty, who spent 15 years with turnaround firm Alvarez & Marsal, is a “turnaround artist,” Cramer said. The new chief executive also served as chief financial officer of Levi Strauss and Warnaco. Since coming aboard Charming Shoppes stock is up 67%, to $3.55 from $2.12. Cramer thinks it still goes higher.

Charming Shoppes has about $1.32 in cash per share, which is a sturdy floor for this $3 name, and Chairman Rosskamm’s cost cutting and inventory reductions are paying off: Despite reported a 16% drop in revenue and 13% decline in same-store sales, operating income came in flat and gross margins improved. Cramer thinks that falling gas prices will put more money in consumers’ pockets, money that could be spent at Charming Shoppes outlets.

A final note: Increased sales would do wonders for the company’s earnings, obviously. But how much of an impact could they have? Susquehanna Research said that a one percentage point bump in same-store sales could translate into 12 more cents per share in earnings. That big, considering Charming Shoppes is expected to lose 20 cents a share in 2010. Cramer said he expected the company do better than just that one percentage point on even a slight improvement in business.

Charming Shoppes works as a speculation play, but use limit orders. And, as Cramer said, don’t “pay a plus price for this plus name.” Anything over $3.75 and you could lose money.

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