Papa John’s shares plunge as pizza sales fall, CEOs blame each other

Earnings


The earnings report showed that sales at locations open for at least a year were already suffering before the spat. Same-store sales fell 6.1 percent in the quarter, worse-than the down 4.9 percent Wall Street had predicted, according to StreetAccount. Comparable store sales from July 2 through July 29 plunged even more, falling 10.5 percent from the same time last year, the company said.

Ritchie told analysts on a conference call that some off-color comments made by Schnatter last fall were still driving away customers. Schnatter criticized the NFL, which Papa John’s sponsored, for failing to curtail players kneeling during the national anthem to protest police brutality against people of color. The matter got even worse after Forbes reported last month that Schnatter used the N-word on a May conference call.

“On the marketing front, the research and analysis we conducted after the NFL comments by our founder in November of 2017 have made it clear that we needed to move away from a founder-centric marketing plan,” Ritchie said on the call. “Obviously, the recent events have further evidenced that we need to move on.”

The company lowered its outlook for same-store sales for the year, saying executives now expect sales at stores open for at least a year to fall between 7 percent and 10 percent this year. The company previously estimated that they wouldn’t fall by more than 3 percent.

“After the July 11th article that came out from, again, very inexcusable and irresponsible comments from Mr. Schnatter, we saw another precipitous drop of roughly 4 percent from the trend,” Ritchie said.

Schnatter shot back with his own statement:

“As I communicated to the Board as early as December 2016 and several times in 2017, I am seriously concerned about the company’s declining sales, financial performance and, most importantly, the direction the company headed under the stewardship of Steve Ritchie and the current board of directors,” he said in a statement after the earnings release. “The financial results announced today further exemplify that concern.”

Schnatter’s comments are just the latest barb in the ongoing feud between the company’s founder and its board.

The board of directors stripped Schnatter’s image off the company’s marketing materials and barred him from using his office at the company’s Louisville, Kentucky, headquarters. Schnatter countered with a lawsuit, accusing the board of acting negligently and staging a possible coup to get rid of him. The brouhaha, which exploded after the quarter closed June 30, didn’t affect second-quarter earnings. But franchise owners say pizza sales and foot traffic have fallen off a cliff since then, focusing investor attention squarely on what to expect in the future.

And future same-store sales could be even worse. Peter Saleh, analyst at BTIG, estimates that same-store sales in the third quarter will be down 9.1 percent. However, Stifel’s analyst Chris O’Cull, projects that the metric could be down as low as 12 percent.

One franchisee, who asked not to be named, said sales at his shops have fallen between 5 and 20 percent, depending on the location, since the founder’s

The company said net income fell to $11.7 million, or 36 cents per share, down from the $24.1 million, or 65 cents a share, it reported in the year-ago period. Excluding the impact of China refranchising, the company earned 49 cents per share, missing analyst expectations of 54 cents per share, according to Thomson Reuters estimates.

Revenue declined 6.1 percent to $408 million from $434.8 million in the year-ago period. Wall Street had expected revenue of $425.5 million in the quarter.



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