Buffalo Wild Wings CEO retires as critics win board seats

News of a leadership shake-up at Buffalo Wild Wings sent the chain's stock up about 2 percent today.

CEO Sally Smith announced she'll retire at year's end as a hedge fund that questioned her leadership got three candidates elected to the company's board.

The departure of the 59-year-old Smith was unexpected and was announced before the votes for board members were counted. Smith has been CEO since July 1996.

Board chairman Jerry Rose said Smith made Buffalo Wild Wings an industry leader.

"Sally has delivered countless contributions to Buffalo Wild Wings for more than two decades and much of our success to date is directly attributed to her leadership," Rose said in a press release.

Smith said in a statement that she is proud of the Minnesota-based company's success.

"We have made great strides in executing our strategic plan and continuing to innovate to stay ahead of the competition," she said.

Smith has argued the company outperformed its peers on key measures such as annual restaurant sales increases and profit margins. But she came under fire from Marcato Capital Management, which had built up about 10 percent stake in the company. The San Francisco-based hedge fund contends that the restaurant chain lost its way under Smith and has underperformed.

"We need a change in direction," Marcato managing partner Mick McGuire told shareholders, "The operating trends are not good."

McGuire believes that the restaurant chain's financial performance and stock price will rise if more restaurants are franchised operations.

He figures about 90 percent of the chain's some 1,200 restaurants should be franchises. Now only about half of them are.

But in a letter to shareholders, Rose, Smith and other board members dismissed McGuire's plan to sell most company-owned restaurants to franchisees as foolish.

"We firmly believe that, in the absence of data about the market for our restaurants and given what history there is of such a major undertaking, it would be imprudent to announce and embark on such a dramatic transformation at this time," they wrote. "We cannot in good faith undertake such an aggressive endeavor with such a significant risk of destruction of shareholder value."

The Buffalo Wild Wings' board has started a search for Smith's successor. Last year, the company had net earnings of $95 million on revenue of nearly $2 billion.

Smith should be well-prepared financially for retirement. Her compensation, including stock awards and options for the past three years, totaled about $11.4 million.