“This is a pivotal time in Buffalo Wild Wings' history” said Buffalo Wild Wings CEO Sally Smith on yesterday’s earnings call.
We couldn’t agree more.
The battle over Buffalo Wild Wings’ future is heating up. Fast. Activist investor Marcato Capital Management (which holds a 5.2% stake in the company) recently sent a letter to the board of directors outlining the restaurant operator’s many failures. In the third quarter results yesterday, the company’s guidance implies negative same-store sales in the fourth quarter.
The decline actually “raises the likelihood the company will be forced to make concessions” to Marcarto, writes Hedgeye Restaurants analyst Howard Penney in a new research note today. Investors seem to agree. The stock is up 6% today.
For the record, Penney sees ‘significant upside’ for Buffalo Wild Wings. His research team has it on their Best Idea Long list.
Here’s why:
- Activist Battle Is Escalating – Management is pushing back against activist investor Marcato, but the company will probably have to relent
- Management’s Inability to Lead – BWLD leadership has made irrational investments; there is room to cut costs and make operational improvements
- History Repeats Itself: The Darden Case Study – Darden’s activist situation makes us confident we already know how this will end
- Win-Win Scenario on the Long Side – If fundamentals turn up, investors win. If worse, CEO loses job and activist/shareholders ultimately win
In the video excerpt above, from that conference call, Penney lays out how investors can benefit from the coming sea change in BWLD. In an research note today, Penney writes “I like the setup of being LONG BWLD going into 4Q16 and 2017.”
