Cramer: Darden Ready to Ramp Up

Tuesday, 16 Sep 2008 | 7:00 PM ET

Cramer recommended Darden on Sept. 10 as part of his “happier days are here again” series. He thinks that declining oil and gas prices, as well as food costs, put this restaurant manager in good position to come out of the market’s present troubles a better company.

No Reservations?
Darden, the parent company of the Olive Garden and Red Lobster just reported 58 cents a share, with Clarence Otis, Darden chairman and CEO and Mad Money host Jim Cramer.

No doubt Chairman and CEO Clarence Otis agrees. Speaking to Cramer via satellite Tuesday, Otis said that Darden is undertaking a number of initiatives – buying LongHorn Steakhouse and Capital Grille not the least among them – to generate increased long-term sales and earnings growth.

Darden’s using its already-proven “restaurant support platform,” which includes information technology, finance support and purchasing power (because of the company’s sheer size), as well as its top-line strengths, such as brand management and advertising, to take a company like LongHorn Steakhouse to the next level. Longhorn already has strong restaurant operations, Otis said, so a merger with Darden just made sense. Over the long term, Darden’s strategies will boost traffic and sales at LongHorn.

“We think all of that will help us as we emerge from this slowdown,” Otis said, “and get back to a more normalized environment.”

But in the meantime that environment is, Otis admitted, a tough one. Darden issued “pretty conservative” guidance just a few weeks ago because the market is so volatile right now.

“We are not expecting things to get better in the near term,” Otis said.

There are aspects of the market that are better than they were just three months ago, he continued, “but there also continues to be some real turmoil and, I think, some real pressure, not just on people’s spending, but on consumer psychology as a result of some of the things we’re seeing the financial markets and elsewhere.”

There is at least one positive that comes with the struggling restaurant business: competitors closing their doors. Otis said Darden has seen its locations get busier as nearby restaurants shut down.

“We would expect that to continue,” Otis said, given conditions in the market right now.

Cramer’s take: “I think that Darden is just a matter of time before it starts ramping.”

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