Cramer's Mad Money - Chipotle Mexican Grill Has Been Punished Enough (8/2/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday August 2.

CEO Don Wood: Federal Realty (NYSE:FRT)

Federal Realty, a shopping center and real estate investment trust, reported a solid quarter with revenues that rose 8.3%. The company increased its dividend by 5.3% for a 2.75% yield. FRT gave bullish guidance, but the stock declined following the quarter. FRT has given investors a 122% gain since Cramer got behind it in 2009, and is up 18% for the year. Investors might want to use the current decline as a buying opportunity.

Don Wood discussed FRT's prime locations in suburbs outside of Washington DC, Boston and Silicon Valley. The company has a competitive advantage in its ability to borrow at low rates. FRT has found buying "mixed use" facilities, not just for retail stores, but for offices, hotels and restaurants, a valuable strategy to keep the business "e-commerce proof." The company continues to raise its dividend at higher rates, and concerning the CFO change, Don Wood said it was a reshuffling, raising a long-time advisor, Jim Taylor, to fill the role of CFO. Cramer is bullish on FRT.

CFO Interview: Jack Hartung, Chipotle Mexican Grill (NYSE:CMG)

Chipotle Mexican Grill (CMG) was one of the greatest growth stories in recent times, until its disappointing earnings report in which it said, for the first time in its 6 year history since becoming a public company, same store sales had declined from 12% to 8%. The stock lost 22% of its value in a single day, and has declined even further since. Has Chipotle been punished enough?

CFO Jack Hartung said that Chipotle has never been concerned with short-term results; "We do not think quarter to quarter, we think about the long-term." The main focus is building a sustainable business model and providing high-quality products. In spite of slower sales, Hartung declared, "The future looks bright." On the news that CMG was, for the first time, going to hire managers from outside the company, Jack Hartung replied that CMG's business culture is still intact, and 98% of managers are still coming from within the company. The move is a temporary strategy to deal with a management shortage.

Hartung said that while CMG has the ability to raise prices, it prefers to have its food available to everyone at a low cost. With Yum Brands (NYSE:YUM) reporting a rise in same store sales from Taco Bell, some have suggested there is a Mexican food trade-down. However, Hartung says the experience at Chipotle is so different from that of Taco Bell, that he doesn't think the latter competes with his company, and that a typical CMG customer is not trying to decide what type of burrito he wants, but decides it is time to eat at Chipotle again, and then orders a burrito. Concerning the sales decline, Hartung noted the quarter that same store sales were at 12% was one that had unseasonably good weather, so there was an unusually high number of visits to CMG that quarter. Cramer thinks the stock is still one that investors have to decide whether or not to pay a premium for, but in his opinion, "the selling has been too aggressive."

Knight Capital Group (NYSE:KCG), Clorox (NYSE:CLX), NYSE Euronext (NYSE:NYX), Monsanto (NYSE:MON)

With the Dow plunging 92 points, a homegrown catastrophe was responsible for the fall in stocks, and was not one that could have been predicted. A glitch in Knight Capital's system executed unauthorized trades and caused the company to lose $440 million in a single day; now the company is threatened with bankruptcy. The stock went from $10 to $2. It is sobering that a company can nearly be wiped out overnight by a software glitch, but with this in mind, Cramer encouraged investors to look for companies that were not vulnerable to technological disasters.

The antithesis of Knight in this respect is Clorox (CLX), because it depends on its brands, not on its software programs. CLX has very little international exposure, and has a strong dividend of 3.5%, while Knight has no yield. Clorox has dominant market share and plenty of cash on the balance sheets, while Knight is besieged with competition and has to come up with enough cash to stay afloat. In short, "The only way Clorox is more dangerous than Knight Capital is if you drink it."

NYSE Euronext (NYX) yields 4.8%, but Cramer wants to be sure the dividend is safe. However, NYX is much safer than a stock like Knight Capital, because it has a hybrid model in its operations (i.e. it is not entirely automatic), and errors can be caught much quicker to prevent a disaster.

Monsanto (MON) was a buy at a lower level. If the employment number is bad, Cramer would recommend buying MON on a decline because "that stock is going higher."

Teen Retail Is As Inscrutable As It Gets: Aeropostale (NYSE:ARO), Abercrombie & Fitch (NYSE:ANF), Macy's (NYSE:M), The Gap (NYSE:GPS), Ross Stores (NASDAQ:ROST), Costco (NASDAQ:COST), Amazon (NASDAQ:AMZN)

Numbers for Aeropostale (ARO) and Abercrombie & Fitch (ANF) were poor after their earnings; shares of ARO declined 33%, and ANF's fell 15%. However, Cramer has said before that teenage retail is very difficult, if not impossible, to predict, given the changing tastes of teenagers in addition to European exposure. Cramer would stick with retailers like Macy's (M), The Gap (GPS), Ross Stores (ROST) and Costco (COST) with a more reliable customer base. Those who want a bit more excitement should buy Amazon (AMZN), but the company is hardly a gamble. Anyone could understand, said Cramer, why J.Crew was taken private; management was tired of having its stock punished on a quarterly basis because of short-term fluctuations that depend on the capriciousness of teenagers.


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