Profit-Taking Bells Ring for Retailers

This group has had a great run, but pare carefully. It's not time to exit the sector completely.
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Editor's Note: Jim Cramer's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Nov. 16 on RealMoney. Let the profits be taken in the retailers. They've had a huge run. They need to refuel. They've been straight up all week. But I don't want to leave this group.

Many people think that these retail sales numbers are just flashes in the pan. They think they are inflated by short-term price-cutting by retailers. Once the unemployment numbers keep climbing, this thesis goes, these stocks will sink right back.

I don't think so. I think that many of these retailers are focused on profitability, not growth, and that's leading to higher valuations in many cases. I am reminded that the best numbers in retail have come from

AutoZone

(AZO) - Get Report

, which has put up fewer stores and focused on better performance at its existing stores. So has

Staples

(SPLS)

. So has

Pep Boys

(PBY) - Get Report

.

I think that companies that have stopped putting up stores willy-nilly and instead are focusing on profitability at existing stores are doing the right thing and, obviously, so does the market. That's what I have been pleading for

McDonald's

(MCD) - Get Report

to do. That's what I see happening at

Home Depot

(HD) - Get Report

and

Best Buy

(BBY) - Get Report

, and, belatedly,

Toys R Us

(TOY)

. That's what

Gap Stores

(GPS) - Get Report

claims it is going to do. It is why I think the moves in these stocks could be longer-lasting than people think.

Companies that put up stores endlessly get stretched thin at the top, as management can't keep an eye on all those stores. The franchises go downhill. Companies that scale back and make stores better can bring out real value.

To these ends, by the way, the stock I

talked up earlier today,

Costco

(COST) - Get Report

, is doing exactly that: slowing store growth

and

bettering stores.

That's the way of the future.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long Best Buy. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to

jjcletters@thestreet.com.