Sales slump worsens at Papa John's, bleak outlook for rest of year
LOUISVILLE, Ky. (WDRB) -- Papa John's International said its domestic sales were down 10.5 percent last month in the wake of John Schnatter’s admitted use of racial language and feud with the company he founded, and executives warned their turnaround plan will take time to bear fruit.
The Louisville-based pizza chain told Wall Street analysts to expect North American sales to be down 7 to 10 percent in 2018. The company had previously forecast sales remaining flat or falling only as much as 3 percent.
CEO Steve Ritchie said the company will “make every effort” to keep North American franchisees from closing stores, including offering relief from royalty payments and other aide. About 80 percent of the company’s 3,400 restaurants in North America are owned by franchisees.
Ritchie said the the Papa John’s turnaround plan includes fresh marketing, discounted deals and outside audit of the company’s culture and diversity efforts.
“Clearly it’s a difficult time for the Papa John’s brand, but there is a way forward,” he said.
Papa John’s has been reeling from the fallout of a July 11 report of Schnatter’s use of the N-word during a private business conference call in May.
Schnatter would admit the remark and apologize, but later say his words were taken out of context and that he regrets giving in to pressure step down as chairman of the company’s board.
Schnatter, who remains a board member and owns about 30 percent of the company, sued his fellow board members last month for not standing behind him, and he has called for Ritchie’s ouster.
In a lengthy statement issued Tuesday, Schnatter said the latest earnings results “highlight the further deterioration of Papa John’s financial performance under the tenure of Steve Ritchie.”
Schnatter said he is "not going away" and that he has “little doubt” things will get worse with Ritchie and the other board members in charge.
Papa John’s said same-store domestic sales slid 6.1 percent in the April-June period, the third straight quarterly decline. The results were worse than Wall Street analysts' forecast of a 4.7 percent drop in comparable sales at North American restaurants.
The 6.1 percent decline illustrates the challenges the brand faced before last month’s negative publicity surrounding Schnatter, as the period ended June 30, prior to the Forbes report.
On a conference call with analysts, Ritchie said sales fell off a cliff following Schnatter’s November 2017 comments critical of the NFL’s handling of player protests of the national anthem and had not shown signs of a bounce-back before last month’s racial language controversy made things worse.
But Schnatter said the sales slump started in mid-2016, when Ritchie “assumed CEO responsibilities.” Schnatter, who groomed Ritchie for the top job, was CEO until December 2017, when Schnatter gave up the post in the wake of the NFL comments.
Ritchie said Papa John’s is determined to “move on” from Schnatter.
“I couldn’t be more excited than I ever have been in my 22 years with the Papa John’s brand to flip the switch and look forward (and) not be distracted by the words and comments of one individual,” Ritchie said.