Jim Cramer: Reports of the Mall Stocks' Death Have Been Greatly Exaggerated

 | Mar 27, 2018 | 7:55 AM EDT
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No one believes me about the return of the mall. I don't blame them. There have been so many bankruptcies that we are inured to them.

Claire's Stores filed for Chapter 11 last week. Well, no kidding. A place that pierced more than 100 million ears is a mall relic.

We also see Sears (SHLD) slip-slidin' away, even as I feel good about CEO Eddie Lampert after that trenchant Vanity Fair profile. We see Ascena Retail Group (ASNA) with six out of eight of its pathetic mall brands (including Ann Taylor and Loft) teetering and fighting for its life. No wonder things looks dire.

But then we see a bid like 660-store sneaker-chain Finish Line (FINL) got on Monday and we say to ourselves: "Hey, maybe it's not so dead." JD Sports Fashion -- a smart outfit, according to all of my contacts -- is paying $558 million in cash ($13.50 a share) for the company.

It's a welcome move for shareholders that not only upgrades Finish Line itself, but also helps Macy's (M) , which has Finish Line run sneaker sections in 450 stores. The rap against Finish Line had been that unlike Foot Locker (FL) , it didn't always get the first-run Nikes. I bet that changes now with the giant JD Sports owning them.

This deal got me to thinking about how so many mall chains of late have reported fantastic numbers. I know no one is paying any attention to fashion-forward apparel company Zumiez (ZUMZ) , but the stock hit a 52-week high Monday after reporting much-better-than-expected sales a couple of weeks ago. That's right, not a 52-week low, but a 52-week high!

DSW Inc. (DSW) is also on the verge of doing the same after two weeks ago reporting sharply better-than-expected quarterly earnings per share (38 cents vs. the 27 cents forecast). I normally would be frightened of a down-and-out retailer than yields 4.4%, but DSW just raised its payout by 25%. That allays a lot of fears and is pretty fetching.

And while I don't want to get too excited, have you seen the action in Express Inc. (EXPR) ? It's down 28% for the year and trading at only $7.28 a share. But look deeper and you'll see that this profitable retailer -- make that very profitable retailer -- just earned 37 cents a share last quarter, with expanding merchandise margins rather than declining ones. And get this, Express has $236 million in cash and no debt, even thought its market cap is only $573 million.

And while we all laughed at the 80% short squeeze when jewelry company Fossil Group (FOSL) reported earnings in February, the company printed 64 cents per share when the street was only looking for 40 cents. FOSL also had 2% positive comps, something that we sure aren't used to seeing from the company. Additionally, the firm increased its cash position to $231 million from a previous $166 million and no longer seems to be at death's door.

People also yawned when Guess Inc. (GES) reported an upside earnings surprise last week of 62 cents per share vs. analysts' consensus 54 cents. Yes, there were flies on that report, including projected low-single-digit declines in same-store sales. Still, a 52% increase in EPS is pretty darned good, and the stock hit another 52-week high Monday.

I know that no one believes in the malls any more. But at what point do you say: "Wait a second, you have all of these better-than-expected earnings from mall stores, as well as positive numbers out of Abercrombie & Fitch (ANF) , American Eagle Outfitters (AEO) , Gap Inc. (GPS) , Macy's Inc. (M) , Michael Kors Holdings (KOR) , Ralph Lauren (RL) , Tapestry (TPR) , Urban Outfitters (URBN) and Williams-Sonoma (WSM) . Isn't that enough already?"

I think the problem is just perception. True, L Brands (LB) has a lot of stores in malls, and their numbers aren't up to expectations. But the company is buying back stock aggressively and does yield 5%.

I don't know what has to happen to get things right there, but if L Brands did it, that would be huge for the mall sector. I also think that some companies like Ascena simply refuse to bite the bullet on their eight brands and own up to the dismal nature of their portfolio. Maybe they have to fail before they get cleaned up.

Nevertheless, each quarter I see another retailer break out, do better and/or get taken over. I can't be silent about this, even as it seems ridiculous when you have anchor tenants like a Sears or stores owned by GameStop (GME) (which is due to report Wednesday) faltering. Or when you have problems at Signet Jewelers (SIG) , which keeps sinking now that Zales and Kay are run like jewelers, not loan sharks.

Still, I think we've reached a tipping point where the never-troubled European apparel and jewelry kings and the no-longer-struggling public companies are becoming the backbone of the mall. Just a few more closings -- and, yes, a handful of bankruptcy close-outs -- and the numbers will make very clear that mall retail is back. There are simply too many bargains like Finish Line to keep ignoring what's right in front of our faces.

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