It may be time for Buffalo Wild Wings (BWLD) CEO Sally Smith to end her 21-year reign over the restaurant chain.

Activist investor Marcato Capital Management filed a definitive proxy statement with the Securities and Exchange Commission on Thursday for the election of Scott Bergren, Sam Rovit, Lee Sanders and Mick McGuire to the Buffalo Wild Wings Board of Directors. Plus, Marcato said Smith "should resign, so that the company can properly address these significant operational and financial deficiencies that have occurred under her watch."

McGuire, managing partner of Marcato, has led the long-running campaign against Buffalo Wild Wings.

"Simply put, the financial and operational performance of Buffalo Wild Wings over the past several years has been inexcusable," McGuire said in a statement.

McGuire said Buffalo Wild Wings' management has done nothing to improve declining foot traffic, same-store sales, profit margins, returns on capital or guest experience ratings. Not to mention, Smith and nearly every senior executive at Buffalo Wild Wings have sold massive amounts of shares over the last 13 years. In a recent transaction, Smith sold 2,000 shares of the company for $314,000.

"As shareholders, we deserve a board and management team with real skin in the game that will take action to strengthen the Buffalo Wild Wings brand, recapture operating margin opportunities, allocate capital intelligently and employ an efficient franchising plan," McGuire said.

READ MORE: Activist Investor Marcato Rebukes Buffalo Wild Wings Director Nominations

Marcato holds 6.1% of the outstanding shares of Buffalo Wild Wings.

 

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In response, Buffalo Wild Wings said that its performance has outperformed the casual dining industry with "superior results" for the past decade.

"Under CEO Sally Smith's leadership since its IPO in 2003, the company has generated total returns for shareholders of 1697%," Buffalo Wild Wings said in an email. "In fact, $10,000 invested in Buffalo Wild Wings stock at the IPO was worth more than $175,000 on March 31. The company has continued to innovate and pursue cost savings initiatives amid difficult market conditions for the sector and remains focused on creating sustainable value for our shareholders."

Still, Marcato has provided some damning evidence against Smith and current board members.

Even a former Buffalo Wild Wings executive, unidentified in Marcato's proxy filing, backed the activist investor saying, "the assessment of you and your team, as it relates to the challenges of Buffalo Wild Wings, are spot on and things that literally we have been talking about and trying to change for years."

Here's why Marcato is trying to push Smith out the door.

Smith has failed to increase Buffalo Wild Wings' share price.

Despite Buffalo Wild Wings suggesting that the company has outperformed the broader industry for the last decade, Marcato said the stock has actually underperformed the S&P 600 Restaurants Index for the past five years. On a one-year basis, shares were lower than the average by 7%, on a three-year basis, 43% and on a five-year basis, an eye-popping 85%.

Buffalo Wild Wings growth has hit a wall on all fronts.

Marcato said Buffalo Wild Wings has seen its same-store sales, foot traffic and margins deteriorate, with its comparable store sales growth at its "lowest levels in over a decade."

For its recent fourth quarter, Buffalo Wild Wings reported a 4% slip in same-store sales. The company reported restaurant-level margins of 15.6% for the three months ended Dec. 25, compared to the previous year's 18.6%, representing a 590-basis-point decline from its 21.5% first-quarter peak back in 2014.

Meanwhile, guest satisfaction has dwindled, too. Buffalo Wild Wings was ranked the worst in overall guest experience out of its casual-dining competitors including Cheesecake Factory (CAKE) and Darden Restaurants' (DRI) Olive Garden and LongHorn Steakhouse, according to Marcato research.

Smith refuses to boost the company's franchise mix.

Marcato said typically, shares of restaurant chains with 70% or higher franchise mixes "trade categorically higher" than their competitors. Buffalo Wild Wings falls in the middle category with about 30% of its restaurants operated under franchisees.

The activist investor said Buffalo Wild Wings could "trade at a much higher multiple given its strong growth potential if it increased its franchise mix."

KeyBanc Capital Markets analyst Chris O'Cull was quoted in the proxy saying the key to the success of rival Restaurant Brands (QSR) - which operates Tim Hortons and Burger King - was its "decision to shift their cultures and structure to support franchise growth."

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