LOUISVILLE, Ky. (WDRB) -- Four months after Louisville-based Papa John’s International sidelined its founder, John Schnatter, the company’s slumping sales are showing no signs of turning around.
On Tuesday, Papa John’s reported a 5.3 percent drop in same-store sales at its North American restaurants during the January through March period, compared to the same time a year earlier.
Following a 3.9 percent drop in the final quarter of 2017, it marks the first time since 2003 that Papa John’s has seen sales fall in consecutive quarters, according to company data.
“You don’t see negative comp-ing quarters from Papa John’s very often here,” CEO Steve Ritchie told stock analysts on a conference call Tuesday. “...We know that we’ve got some things that we need to repair there to start moving the overall business forward.”
Schnatter, who remains the company’s chairman and largest shareholder, stepped down as CEO on Jan. 1, about two months after he blamed the company’s poor sales on the controversy surrounding National Football League players kneeling during the pre-game national anthem to protest racial injustice.
Schnatter said the NFL should have “nipped (the controversy) in the bud” a long time ago – comments for which the company would later apologize.
Papa John’s has some lingering “consumer sentiment challenges” resulting from Schnatter’s remarks, Ritchie said Tuesday.
Will Slabaugh, a restaurant analyst with Stephens Inc., said in a note to clients Wednesday that Schnatter's comments "seem to have given a portion of the company's guests a reason to look elsewhere."
"While we don’t see this as a longer-term impairment to the brand, we do believe it will take a fairly aggressive message to give customers a reason to either return to the brand or increase their frequency," he said in the research note.
But the first-quarter sales figures underscore how the company’s problems extend beyond football controversy.
Executives acknowledged in February that they face a more fundamental issue: for many consumers, a Papa John’s pizza isn’t worth the cost.
On Tuesday, Ritchie pleaded for patience in fixing what he called the “value perception challenge.” Sales should start turning around in the second half of the year, he said, but the company still projects no growth or a slight decline for 2018.
“On the value side, the work that we’re doing there, those are things that take some time,” he said.
Ritchie said the $12.99 Papa’s Meal Deal, an “everyday accessible offer” launched earlier this year with a new advertising campaign, is meeting expectations, though he was not more specific. The company will be testing more value offers, he said.
Slabaugh said in the note that Papa John's will test more "value" deals through the fall and likely include one with "a lower entry-level price point" to attract individual customers as well as families.
Company parts ways with chief marketing officer
The company said Tuesday that it’s parting ways with Brandon Rhoten, its chief marketing officer hired less than a year ago from Wendy’s International, and looking for his replacement.
Rhoten helped the company identify its problems, but he is not the right person to “execute upon the strategy we have built,” Ritchie said on the conference call.
“Given the sales challenges we're experiencing in this brand, we need someone that can move quickly and at the level of pace and agility that’s required in a retail environment that is as competitive as the pizza category,” Ritchie said.