Buffalo Wild Wings Inc. on Monday identified 83 company-owned restaurants it aims to sell to franchisees this year, formally launching a sale executives first discussed in January after an activist shareholder’s pressure.
The company said the Denver-based consulting firm Cypress Group would market and broker the sales. The company and the activist shareholder had each used Cypress in recent months,
The number of restaurants is at the high end of a range identified by executives as they test out a strategy, known as refranchising, or shedding company-owned restaurants to lower capital spending and operational costs. Investor Mick McGuire of Marcato Capital Management last spring bought a stake in the restaurant chain and started prodding executives to make the real estate moves to boost shareholder value.
The Golden Valley company currently owns about half of its 1,250 locations, with the other half owned by franchisees. McGuire launched a proxy battle for seats on the company’s board and won three, including one for himself, at its shareholder meeting earlier this month.
The company’s longtime chief executive, Sally Smith, announced her retirement at the June 2 meeting. Buffalo Wild Wings shares are down about 13 percent since the meeting and closed Monday at $137.60, near a 52-week low.
In Monday’s announcement, Buffalo Wild Wings said the 83 restaurants it will sell are in Canada, central and eastern Pennsylvania, the northeast U.S., south Texas and Washington, D.C. The company said nothing about McGuire’s new presence on the board and offered no further elaboration.
During the proxy fight, McGuire argued that Buffalo Wild Wings should trim its roster of company-owned restaurants by 90 percent to just 60 or so. The result, he forecast, would be that the company’s share value would more than double over the three or four years it took to make the sales. Company executives argued his forecast was too optimistic and a rapid sell-off of properties would likely not yield their proper value.
Fast-food restaurants are nearly all run by franchisees. But most of Wings’ peers in the fast-casual dining industry own about two-thirds of their locations and franchise the other one-third. Only DineEquity Inc.’s Applebee’s chain has shifted so aggressively to franchise ownership in a short period of time and the company has endured operational difficulties in the process. Its stock has lost half its value since November.
Analysts say the operations of a fast-casual restaurant are harder to standardize and the lack of control over franchisees can make it more difficult for a company to implement new products and projects.