Bill Ackman's protégé just released a brutal letter tearing apart Buffalo Wild Wings

Buffalo Wild Wings found itself in hot water Wednesday after an activist investor ripped apart the sports-bar chain’s management and called for some major changes.

Mick McGuire, the founder and CEO of Marcato Capital Management who has been called a Bill Ackman
“protégé”, released a letter to the chairman of Buffalo Wild Wing’s Board of Directors, James Damian on Wednesday. The letter, accompanied by a presentation the hedge fund shared with the chain in June, accuses Buffalo Wild Wings of squandering its potential and argues the company needed to make some major changes.

“Given the Company’s lacklustre analyst day presentation and observable discontent among shareholders and research analysts, we have determined that it is appropriate at this point to share our perspectives with the investment community,” begins the letter.

Marcato has a 5.2% stake in Buffalo Wild Wings.

Here are the hedge fund manager’s biggest issues with the chain:

1. Buffalo Wild Wings is dragging its feet.

“The management team of Buffalo Wild Wings communicates its strategic and financial rationale to the investment community with inveterate avoidance of specificity,” writes McGuire “The chronic absence of detail around even the most basic of metrics causes us to question whether the right questions are being asked and answered.”

McGuire also accused the management team of favouring “gut feel and thematic proclamation without tangible evidence or appropriate analytical support.”

2. Management essentially doesn’t know what it is doing.

MercatoSlide from Mercato’s June 2016 presentation

“There is an intellectual divide that must also be addressed: there is a glaring deficiency of understanding at the Company in how capital deployment relates to shareholder value creation,” write McGuire (emphasis added).

The fact that no current director has direct restaurant operating experience except CEO Sally Smith presents a problem, in McGuire’s view. Unsurprisingly, McGuire wants “interested shareholders” — like Marcato — to be consulted in adding new board members, calling independent changes “a hostile act of entrenchment.”

3. Food and service aren’t as good as they needs to be.

This is an area where McGuire and Buffalo Wild Wings seems to agree, to a degree.

McGuire states the company must improve food quality, speed of service, technology, food cost, and labour engineering, almost all things mentioned (albeit vaguely in most cases) in the company’s analyst day. Instead of focusing on making changes to operations, McGuire says that company has focused on opening new locations and bringing on more franchises, which could create issues in the long term.

4. New brands need to be ditched.

McGuire wants Buffalo Wild Wings to ditch its emerging brands, fast-casual concepts PizzaRev and RTaco.

“Wild Wings’ continued success is not an inevitability; as such, we believe the Company should remain singularly focused on its largest earnings driver rather than placing wild bets, however small, on hit-or-miss ‘growth drivers’ — particularly those in the highly competitive, non-core, fast casual space,” he writes (emphasis added).

Buffalo Wild Wings responded to the letter later in the day on Wednesday, releasing a statement that reads:

The Buffalo Wild Wings Board of Directors and management team are committed to acting in the best interests of the Company and all of its shareholders. We welcome communications with our shareholders and we value constructive input toward the goal of enhancing shareholder value.

Members of our Board and management team, as well as our outside advisors, have met with and spoken to Marcato numerous times since learning of its investment. We have reviewed Marcato’s June 2016 presentation, and will carefully consider its August 17, 2016 letter.

Our Board and management team will continue to engage constructively with Marcato and we will also consider the input of our other shareholders. Buffalo Wild Wings is committed to executing the Company’s strategy and creating value for all shareholders.

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