Buffalo Wild Wings Inc. set June 2 for shareholders to choose between the leaders who built the 1,200-store restaurant chain and an activist investor who thinks they became complacent after stellar growth.
The company asked shareholders to stick with Chief Executive Sally Smith, who has led the firm since 1996, and a slate of eight other directors, including three who joined the board just last year and two others who would be new.
Activist investor Mick McGuire, who through hedge fund Marcato Capital Management LP took a 6 percent stake in the company last summer, wants shareholders to choose a group of directors that includes himself. McGuire last week said Smith should resign, though he didn’t propose a shareholder vote on that.
With Monday’s announcement of the date for its annual shareholders meeting, Golden Valley-based Buffalo Wild Wings gave itself six weeks to convince investors, chiefly large institutions and fund managers, that executives and board members are not content with its success and that Smith is still the person to lead it.
“Our board and management team are under attack from a short-term-focused hedge fund, Marcato Capital Management LP, that seeks to upend our winning formula and business strategy,” the company told shareholders.
Smith, who is 59, took Buffalo Wild Wings public in 2003 and oversaw expansion that averaged 55 new locations a year and peaked with 102 in 2013. As the company’s reach extended to most of the country, it looked overseas and to new food concepts for growth.
McGuire for months has argued that Buffalo Wild Wings executives and directors took their foot off the gas in recent years. He urged steps to extract more value from the existing business, the biggest of which is selling most of its company-owned locations to franchisees and delivering the real estate profits to shareholders.
In the proxy filing and letter sent to shareholders, Buffalo Wild Wings rebutted that portrayal. It said some of McGuire’s ideas are good but that he has “no credible plan for sustainable growth in shareholder value.”
The company said that it had outperformed its casual dining rivals in several key financial measures, including shareholder returns, earnings- per-share growth, returns on capital, same-store sales and restaurant margins.
“If you invested with us at our IPO, 10 years ago, five years ago, three years ago or even a just a year ago, you have earned a return that exceeds the median return generated by other casual dining restaurant companies,” the company said.
That peer group includes about a dozen firms like Brinker International Inc., California Pizza Kitchen, Cheesecake Factory Inc., DineEquity Inc. and Red Robin Gourmet Burgers Inc.
But Buffalo Wild Wings also said executives recognize that restaurant growth has exceeded population growth in the U.S. and that innovation is necessary. “We are not sitting still,” the company said.
Buffalo Wild Wings shares, which popped to their highest level of the year last week, rose marginally on Monday.
Marcato late Monday issued a short statement criticizing one piece of data in the company’s proxy. It said the company’s claim that its five-year shareholder return as better than an industry index was false. In the statement, McGuire asked, “How much value has been destroyed thanks to sloppy ‘analysis’ like this?”
The company on Tuesday morning responded to McGuire's complaint on the datapoint by laying out the methodology of the research firm it worked with to create the comparison on total shareholder return. It said it believes the comparison it made was accurate.
In statements and interviews, McGuire has said the company refused to engage with him. In its documents Monday, Buffalo Wild Wings said its executives and directors “have invested significant effort in engaging with Marcato.”
The company said it had begun to sell some of its approximately 600 company-owned restaurants. But it added that McGuire’s desire to sell nearly all of them “simply does not pencil out.”
“Given our focus on extending our successful long-term track record, we will not support risky financial engineering strategies that provide an unlikely and modest short-term benefit but create substantial long-term risk,” the company said in the letter to shareholders. “We do not believe that is what you want us to do, nor would you be well-served by it.”