Buffalo Wild Wing's first-quarter earning miss could give hedge fund Marcato the advantage ahead of the company's proxy vote in June.
Shares of the company fell more than 3.2 percent on Wednesday.
"The stock has been moving sideways for years," Trevor Boomstra, principal at A.T. Kearney, told CNBC. "It is not clear that management is able to deliver the change needed. These poor results will just ratchet up the calls for change from Marcato and other increasingly other investors."
Marcato and Buffalo Wild Wings have been sparring since July over how the company should be run and who should be part of its board.
"After missing two of the last four last estimated earnings, Buffalo Wild Wings missed once again," Boomstra said. "Margins continue to erode. Higher food and labor costs are putting pressure on already tight margins. It is surprising that the management has not reacted quicker to control these key costs in a business that they should clearly understand."
Buffalo Wild Wings reported adjusted earnings of $1.44 per share on $535 million in revenue in the latest period. The company was expected to report earnings of $1.68 per share on $535 million in revenue, according to Thomson Reuters estimates.
B-Dubs CEO Sally Smith blamed high labor and operating expenses for putting pressure on margins and, ultimately, lowering EPS for the quarter.
"In order to improve margins and profitability, we've undertaken a thorough review of our restaurant operating practices, field organization, and third-party spend with a leading consulting firm who worked with our Team Members and franchisees," Smith said in a statement Wednesday. "We've identified areas to streamline work and improve efficiencies. As a result of these initiatives, we expect to realize $40 to $50 million in cost savings over the next two years."
The company did see same-store sales grow 0.5 percent at company stores for the quarter, narrowly higher than the 0.3 percent analysts had estimated, according to Street Account.
Marcato, which owns 6.1 percent of the restaurant chain's outstanding stock, has been pushing for Buffalo Wild Wings to franchise more of its restaurants.
The company said Wednesday that it will sell 80 stores to franchisees, but
"The locations represent just a 7 percent swing from corporate to
In February, Marcato nominated its founder Mick 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 — for its slate.
Also in March, the hedge fund published a presentation for investors that argued the executives' interests were not closely aligned with the chain's shareholders. McGuire said that none of the Buffalo Wild Wings executives owns the company's stock and only one director has ever executed an open-market purchase of the stock. He argued that this means management is not as heavily invested in the future of the company.
Further instigating Buffalo Wild Wings, he called last week for B-Dubs CEO Sally Smith to resign. Buffalo Wild Wings defended Smith's performance, saying she has helped generate huge returns for shareholders.
On Monday the chicken wing company battled back, writing a letter to shareholders that accused the hedge fund of attacking its board and management team and offering documentation of the value it had returned to investors over the last five years.
Marcato was quick to respond, accusing the chicken wing chain of making an "astronomical error" in its SEC filing on Tuesday.
Buffalo Wild Wings said that it stands by the claim it made in the proxy statement according to the methodology used by Research Data Group, the third party it hired to run the numbers.