Jim Cramer says Costco is a buy, Lululemon is a wait-and-see

CNBC’s Jim Cramer on Friday advised investors how to approach the stocks of two retailers that reported earnings this week.

“Two great retailers. Two sets of expectations. One too high, the other too low. That’s the tale of Lululemon and Costco. The former was overestimated, the latter was underestimated,” he said.

Here are his thoughts on both stocks.

Shares of Lululemon tumbled over 12% on Friday. The athletic apparel company reported a beat on third-quarter sales and profit on Thursday after the close, but issued a softer-than-expected guidance for the fourth quarter.

Cramer said that the main problem with Lululemon was that its strength was already baked into its stock price going into the quarter, which means that it tumbled when the company failed to report perfect results.

“Unfortunately, this kind of selling usually doesn’t stop after just one day. If you like Lulu — as I still do, by the way — I recommend waiting until next Tuesday to see if this selling that started today abates,” he said.

Shares of Costco inched up 0.33% on Friday. The company missed Wall Street expectations on its top and bottom lines for its latest quarter after the close on Thursday, but indicated in its earnings call that a special dividend and membership fee increase are likely coming.

Unlike Lululemon, Wall Street underestimated the company’s ability to churn out a solid quarter, according to Cramer.

“I think you should be buying Costco if you don’t already own it. The expectations have been wrenched out, and the upside awaits,” he said.

Disclaimer: Cramer’s Charitable Trust owns shares of Costco.