Shares of Buffalo Wild Wings fell more than 4 percent on Tuesday after Wedbush slashed its rating on the stock, calling the company's proxy battle with activist Marcato a "lose-lose" situation for shareholders.
"We view the outcome of the upcoming proxy vote as irrelevant given our view that neither alternative offers a viable solution to the company's ongoing deterioration in fundamentals," Nick Setyan, an analyst at Wedbush, wrote in a research note Tuesday.
According to the analyst, if the company were to continue along its current strategy, same-store sales would likely grow at a slightly positive
In addition, he pointed to growing wing costs and labor inflation as headwinds for Buffalo Wild Wings in coming quarters.
All of this is a potential threat to the wing chain's ability to meet its earnings forecasts as the company is unlikely to be able to offset its higher costs by raising prices. As a result,
According to Thomson Reuters survey of analysts, B-Dubs is expected to earn $5.54 a share this year, and $6.79 a share next year.
However, Setyan said the hedge fund's plan is not "a viable alternative" to the company's strategy.
Marcato wants to boost Buffalo Wild Wings' franchised stores from 50 percent of its fleet to 90 percent, a strategy Setyan said is "no longer compelling" and likely won't boost the stock up significantly over current prices.
"In recent presentations, Marcato has implied that the lower end of their expected 2-5 year range for the process of
Meanwhile, both sides continued to make their cases, just days ahead of the June 2 vote.
Buffalo Wild Wings CEO Sally Smith addressed shareholders Tuesday, touting her nearly 21-year tenure with the company. She blamed slowing mall traffic, a decline in sports viewership, and millennial consumers who cook at home more frequently and order delivery for why sales have been sluggish.
"Despite these headwinds, Buffalo Wild Wings continues to perform well, achieving positive same-store sales growth in the first quarter of 2017 and generating substantial free cash flow," she said.
Smith also touted strategies the company is employing to improve its results such as testing smaller locations that can be opened in more heavily populated areas to focus on takeout and delivery. The chain also is trying marketing programs that are aimed at boosting check size and looking for ways to cut costs.
On the other side, Marcato founder Mick McGuire boasted in a letter to shareholders Tuesday about the support it received from independent proxy advisory firms Institutional Shareholder Services and Egan-Jones.
Egan-Jones supported all four of the board candidates proposed by Marcato, but ISS only supported three of the four. ISS backed McGuire, Scott Bergren, a former Pizza Hut CEO, and Sam Rovit, CEO of CTI Foods, who is also on Buffalo Wild Wings' slate.
ISS did not support Lee Sanders, former chief development officer of TGI Fridays, saying that Sanders did not need to be added to the board because the proxy advisor did not feel Marcato needs to fully implement its
In his research note,
Marcato, which now owns 9.9 percent of the outstanding shares of Buffalo Wild Wings, continues to push for
Both Buffalo Wild Wings and Marcato encouraged investors to vote for their proxy card ahead of the vote Friday.