Activist investor takes another swing at Buffalo Wild Wings, calls for CEO to resign

Key Points
  • Activist investor Marcato Capital Management calls for the resignation of Buffalo Wild Wings' CEO Sally Smith
  • Marcato says that the company's board has "blindly stood by management"
  • Buffalo Wild Wings defends Smith's tenure with the company
Sally Smith, CEO, Buffalo Wild Wings
Scott Mlyn | CNBC

Activist investor Marcato Capital Management fired its latest salvo Thursday against Buffalo Wild Wings, calling for CEO Sally Smith's removal, according to an SEC filing.

Buffalo Wild Wing's stock rose more than 4.2 percent following the news.

Marcato, which owns 6.1 percent of the restaurant chain's outstanding stock, sent a letter to shareholders that also calls for other changes.

"[U]nder current management, shares of Buffalo Wild Wings' common stock have underperformed virtually every relevant benchmark on a 1-year, 3-year, and 5-year basis," Marcato founder Mick McGuire wrote in a release. "Despite declining same-store sales, lackluster margins, a deteriorating guest experience and poor capital deployment decisions, management continues to fight tooth-and-nail to maintain the status quo."

McGuire said because the board has "blindly stood by management," Smith should be replaced in order to restore "oversight and accountability."

The company defended Smith's performance, saying she has helped generate huge returns for shareholders.

Marcato has been pushing since July for Buffalo Wild Wings to franchise more of its restaurants. In February, it nominated McGuire and three others directors to the board.

However, in late March, Buffalo Wild Wings picked only one of Marcato's suggestions — Sam Rovit, who has 20 years of experience in the food service industry.

The gesture was not enough for Marcato. The firm said last month that B-Dubs did "not go far enough" and had not addressed the firm's proposed operational improvements and business model modifications, which it says will drive value for shareholders.

McGuire in March also published a presentation for investors that argued the executives' interests were not closely aligned with the chain's shareholders. McGuire noted that none of the Buffalo Wild Wings executives owns shares in the company and only one director has ever executed an open-market purchase of the stock.

He also argued that B-Dubs' management team has been using equity incentive plans to purchase shares at a lower price and then sell them on the market to make cash.

"As shareholders, we deserve a Board and management team with real skin in the game that will take action to strengthen the Buffalo Wild Wings brand, recapture operating margin opportunities, allocate capital intelligently, and employ an efficient franchising plan," McGuire said.

The company responded with this statement:

"Over the past decade, Buffalo Wild Wings' performance has consistently led the casual dining industry, delivering superior results to our shareholders while providing a differentiated guest experience to our customers. Under CEO Sally Smith's leadership since its IPO in 2003, the Company has generated total returns for shareholders of 1697%. In fact, $10,000 invested in Buffalo Wild Wings stock at the IPO was worth more than $175,000 on March 31, 2017. The Company has continued to innovate and pursue cost savings initiatives amid difficult market conditions for the sector and remains focused on creating sustainable value for our shareholders."