Mick McGuire of Marcato Capital Management reiterated his bullish call on Buffalo Wild Wings, telling the crowd at the Sohn San Francisco Investment Conference that the restaurant chain must transition to more of a franchised store model to unlock value.
The activist investor, who was previously a partner at Bill Ackman's Pershing Square Capital Management, acquired a 5.1 percent stake in Buffalo Wild Wings in July and then in August sent a scathing letter to the restaurant chain's chairman, James Damian, calling for a management and board overhaul. The shares are down 10 percent in 2016.
McGuire said at the start of his presentation that his cost basis for the stock was around $140. The shares closed Wednesday at $141.30
"We think we have a really great entry point," McGuire said Wednesday. He reiterated his call for Buffalo Wild Wings management to do three things under his proposal: make at least 90 percent of its stores franchises (right now the mix is about 50-50), improve operating margins and optimize the company's capital structure by issuing more debt.
"We believe BWLD's stock price could rise by more than two to three times under Marcato's proposal," said McGuire.
The activist investor also made the point that executive compensation is inappropriately linked to revenue growth. There is bound to be poor capital deployment "when management is paid to post sales growth no matter what way they do it," he said.
A graphic during his presentation showed that restaurants which have 70 percent plus of their stores as franchises trade at higher multiples than chains with mostly company-operated stores.