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Now that we're through most of the reporting season, one thing has become abundantly clear. Retail is as confusing as ever, with big winners, big losers, and everything in between. So, how do you distinguish early on between those who are successful and those who are not? I have an idea. Why not ask the landlords?
Last night we spoke with Jim Taylor, CEO of Bricksmore Properties. This is a real estate investment fund that owns hundreds of open- air shopping centers. These are places where people still shop, unlike malls that have turned into bowling alleys and wastelands. Taylor told us that Bricksmore is selective about its anchor tenants, those who get the largest square footage.
They need stores that attract visitors to the rest of the complex, and they are willing to say goodbye to those that do not trade well when their leases expire. When we looked at the top ten Bricksmore tenants, something immediately caught our eye. Three of the top seven are discount store chains. These are Cramer's favorites: TJX, Ross and Burlington Stores.
In fact, TJ Maxx is their number one tenant. I've been praising these stocks for ages, all three have risen sharply this year, and I think they'll continue to rise. Look at other shopping malls and you will see the same thing. Regency Centers typically relies on supermarkets, but TJX is still their top-5 tenant.
In its latest investor presentation, Regency named TJX and Ross Stores as among its top tenants, which are opening a slew of new locations. Federal Realty, our friend Don Wood (FRT), owns many mixed-use properties in densely populated urban centers. They single out TJX and Ross as members of the top 25 tenants list.
Kimco, an interesting operator, is currently making a lot of money thanks to good occupancy. TJX is their largest tenant, with Ross and Burlington in the top 15. Kimco also emphasized that these discount chains continue to expand. So what makes these companies such great tenants? I think landlords love them for the same reason buyers do.
Stores like TJX or Ross have a treasure hunt atmosphere where you can find incredible discounts. The basic business model of these chains is that they buy branded items from large department stores, which are looking to get rid of leftover goods at a huge discount. They have the cash, they make a small markup and sell it to you.
That's why buyers keep coming back. When TJX, Burlington, or Ross generate more traffic, it benefits their neighbors in the same mall . They are all winners who have pushed the losers out of the shopping malls. The main thing here is profit, friends. You simply won't find such good deals online unless you visit the websites of these chains themselves .
To get people off their couches and into a physical store, you have to offer them something that isn't available online. Discount chains do this. And it works thanks to high sales. TJX, Ross Stores, and Burlington— they're all in great financial shape. You know, landlords love solvent tenants. In addition, discount chains are expanding.
The only thing better than a reliable tenant is a reliable tenant who wants to rent more space from you. TJX currently has just over 4,400 stores. Over time, they plan to have 6,100 . Ross has 1,800 stores. They are aiming to reach 3,000. Burlington only has 700 stores. They want a thousand. Ultimately, the best for less money.
What really sets discount chains apart is their countercyclical nature. This is typical Wall Street jargon, meaning: they thrive in a weak economy. When times get tough , department stores are forced to get rid of leftover merchandise. So purchasing goods for TJX, Ross and Burlington becomes much easier.
At the same time, consumers on a budget are looking for cheaper options, and these stores offer them. Of course, discount chains also work when times are good. It's a great economy for the consumer right now, and all three of these stocks are rising rapidly. But the fact that they are benefiting from the economic slowdown allows landlords to sleep soundly.
They don't need to worry about TJX. They don't have to worry about Ross or Burlington going bankrupt during the next recession. Let me tell you a little more about each of them. TJX. TJX is the market leader. It is the parent company of TJ Maxx, Marshalls, HomeGoods, and Homesense. This stock has given us a 17% return since I recommended it after the big sell-off in May, and it is up 32% year-to-date.
The company reports in a week and a half . I expect excellent results. TJX has mastered the discount sales business. Ross Stores is the parent company of Ross Dress for Less and dd's DISCOUNTS. Much smaller than TJX, but works just as well . Shares are up 34% year-to-date. The company is growing rapidly for a chain of offline stores.
They have about 1,780 stores and are currently opening about 100 new ones each year. Ross reports in a couple of weeks. I like this company ahead of its quarterly report, although not as much as TJX. Last but not least: Burlington Stores is a little different. They have the same discount model, but it is the smallest of the three companies.
This is more of a story about a successful business recovery . The company has significantly improved inventory management. Products are flying off the shelves much faster than before. For the sake of transparency: we own Burlington stock for my trust fund. And this week we reduced our positions a little bit because the stock went from $191 to $202 in a few days.
I still believe in Burlington. I predict strong results when they report later this month. But I also believe in discipline. My discipline says that you should record profits after rapid growth. The shares of these discount chains are worth much less than they should be . Partly because people from Wall Street would never go into TJ Maxx.
They wouldn't have come. And I am . Just bought a pair of awesome pants for 17 bucks that were 40 at Macy's. Hey, how do you think I got rich anyway? Thank you snobbery. TJX trades at 21 times projected annual earnings. Ross — 22, and Burlington — 24. This is profitable considering their profit growth.
Let me summarize. So, the bottom line: perhaps the best way to understand who is a good retailer is to listen to the landlords. Shopping mall real estate investment trusts love TJX, Ross, and Burlington. So maybe you should do the same. Mad Money will return after a break. Hello, I'm Wessen. I am a soldier stationed at Camp Lemonnier in Djibouti, Africa.
I want to say hello to my friends and family in Thousand Oaks, California. I love and miss you all. I also want to thank all the veterans watching us for your servic to Kramer with the hashtag # .
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