Analyst says Buffalo Wild Wings shareholders in 'lose-lose' spot

Buffalo Wild Wings shares fell 4 percent Tuesday after a stock research firm declared the proxy battle at this week's annual meeting "irrelevant" to its operational challenges and "lose-lose" to its shareholders.

The analysis by Wedbush Securities took center stage amid a last-minute push for investor support by Golden Valley-based Buffalo Wild Wings and the San Francisco-based Marcato Capital Management before the company's annual meeting on Friday.

The company issued a letter from Chief Executive Sally Smith asking shareholders to side with its slate of directors, and its association of franchisees offered a new statement of support.

Marcato distributed another letter touting support for its competing slate from two companies that advise large institutional shareholders on proxy battles.

A third advisory firm supports the company's slate.

But it was the Wedbush analysis that pushed Buffalo Wild Wings shares down to $145, the lowest level in two months.

"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," Wedbush analysts Nick Setyan and Colin Radke wrote.

The company's stated goal to reach a 20 percent operating profit margin in its restaurants is "increasingly fanciful," the analysts wrote.

Meanwhile, the Wedbush report also criticized Marcato's plan to boost the company's market value by selling most of its company-owned restaurants.

Marcato executives say that will yield proceeds that can be funneled to shareholders and lower capital expenses, but the Wedbush analysts said the sell-off "makes less sense given recent fundamental deterioration."

They cited recent comments by the chief executive of Jack in the Box Inc., which is engaged in a smaller restaurant sale program than Marcato proposes for Buffalo Wild Wings, who described the disruption to that company's operations.

"The very people Marcato counts on to execute its ... strategy may not be as motivated while facing the prospect of the potential elimination of their job," the Wedbush analysts wrote.

Under the Marcato slate, Smith noted that she would be the only director with more than eight months' experience on the board. She did not mention that Marcato is also pressing for her resignation. But she wrote, "While I love my job, sooner or later, it will be time for me to retire."

She argued it would be "unwise" to change "careful balance" on the board between new members and those who know the company's track record.

Evan Ramstad • 612-673-4241