Cramer doesn't recommend AEOS, ARO and ANF, because the market for teenage clothes is too competitive and it is difficult to know which retailer will win. He suggests looking at a younger age bracket and picking up PLCE and GYMB, because there is no other real competition, since these companies are benefitting equally from the fall of Gap Kids. Gymboree has expanded into boys' and newborn clothes, and "Its management has raised its numbers and negotiated better deals with suppliers." Cramer says that PLCE is one of the best stocks in the retail sector because it is has serious earnings and is "over-delivering." PLCE bought out Disney stores and is selling clothes under the Disney brand name. Although PLCE has a large inventory, Cramer predicts success with sales.
"Multiple Contraction" Malaise: Whole Foods (WFMI), Starbucks (SBUX), Hansen Natural (HANS)
Cramer says a bearish disease called "multiple contraction" has been attacking WFMI, SBUX and HANS. Cramer lists five reasons why high-multiple stocks are getting attacked:
1. The Fed is Raising Interest Rates.
2. Stocks trading at a multiple 2x above growth rate should be avoided.
3. High multiple stocks, in spite of their prices, often cannot deliver.
4. If these companies do not meet high estimates, they get hammered.
5. These stocks go from bull to bear in an instant, because everyone wants out at the same time.
Cramer would not buy these stocks on weakness (with the possible exception of SBUX, which has growth opportunities in China), because it will be a very long time before they recover, especially HANS.
CEO Interview: Rick Rosenfield, California Pizza Kitchen, Inc. (CPKI)
Cramer asked Rick Rosenfield where the company's saturation point will be, and he replied that, as CPKI expands throughout the country, there doesn't seem to be a limit to growth. In response to Cramer's question about Domino's Pizza's (DPZ), Rosenfield says that he doesn't view DPZ as competition, since CPKI is a restaurant, and adds that the company focuses more on delivering a high-quality product and customer service than on propelling stock. Cramer commented; "The guy does the numbers, and then some ... I would stay long if you have it; I would buy it if you didn't."
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