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Buffalo Wild Wings: Wall Street darling or afterthought?

Blog: As the chain battles with an activist over its performance, here’s what its stock has really done

This post is part of the On the Margin blog.

Followers of Buffalo Wild Wings Inc. can be excused if they’re confused about the performance of the restaurant chain’s stock over the years.

The company has outperformed the broader stock market, as well as its competition in the restaurant industry. Or it has underperformed. The answer depends on whom you ask — the company or activist investor Marcato Capital Management. 

So we decided to see for ourselves.

Stock prices and stock price comparisons can be prone to manipulation, especially in a proxy fight, which is a corporate election in which two sides are trying to convince voters they’re right.

Because stock prices are always changing, a person can make his or her argument by carefully choosing a timeframe and a group of companies for comparison's sake. 

In this case, we went back to the day before Marcato submitted its activist filing, and simply went back one, three and five years before that. This comparison dates from July 25, 2011, through July 22, 2016. 

This isn’t to discount the past year or so. It just removes the impact of Marcato’s influence from the comparison. Activist investors have a definitive impact on a company’s stock price.

We used our NRN Restaurant Index for simplicity’s sake. Besides, the Restaurant Index provides a relatively tough comparison: Restaurants have easily outperformed the broader stock indexes in recent years.

We also looked only at stock price and did not consider the impact of dividends. Again, we did this for simplicity’s sake.

Our conclusion: Buffalo Wild Wings has outperformed its competing restaurants, as well as the broader stock market, over the long term. But it has lost momentum recently amid growing concerns about same-store sales weakness.  

Over the full five-year period, Buffalo Wild Wings’ stock has doubled. That bested both the restaurant industry, per the NRN index, and the broader market, per the S&P 500.

The gap between Buffalo Wild Wings and other restaurants narrows substantially on a three-year basis. The chain’s stock increased 41 percent between 2013 and 2016. The NRN Index rose 39 percent over that time, while the S&P 500 rose nearly 29 percent.

But the 12 months between July 2015 and July 2016 were not good for Buffalo Wild Wings, which lost 21 percent of its stock price over that time, while the S&P 500 increased 4.6 percent and the NRN index rose 9 percent.

None of this is to say that Marcato should win, or that Buffalo Wild Wings should hold serve in its proxy fight.

Marcato has nominated four people to Buffalo Wild Wings' nine-person board. Marcato also wants CEO Sally Smith to step down. Marcato says the company has operations problems that are damaging sales and profits. 

Buffalo Wild Wings has nominated a pair of newcomers to its slate of nominees, including Sam Rovit, one of Marcato’s nominees. The company also appointed a trio of independent board members last fall. 

Ultimately, the question for investors is whether the company should be given credit for that long-term performance — or whether that decline warrants a bigger shakeup than the one Buffalo Wild Wings is proposing. 

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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