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Papa John’s CEO: We Are Still Suffering From Customer Sentiment

Danni Santana
Papa John’s CEO: We Are Still Suffering From Customer Sentiment

Papa John’s comparable-store sales and revenue plummeted again in the fourth quarter, with the company warning investors of more losses to come in 2019.

System-wide North America same-store sales dropped eight percent over the period, and seven percent for the year, Papa John’s disclosed Tuesday after market closing. Revenue also declined 12 percent in 2018, according to the company.

“The North American results are disappointing to all of us, and continue to reflect the consumer’s sentiment challenges our brand has experienced in the U.S.,” said Steve Ritchie, Papa John’s CEO, on an earnings call with analysts.

Similar to its previous quarter, Papa John’s excluded $25.9 million from earnings due to “special charges” in the quarter that included $5.5 million in royalty reductions for struggling franchisees and $2.2 million to eliminate branded assets featuring former Chairman and Founder John Schanetter from marketing materials.

The pizza chain began pulling Schnatter from marketing materials in September, with the launch of its Voice of the Papa John’s campaign. But despite the $10 million invested by Papa John’s into advertising efforts in the quarter, the ads have yet bring consumers back to its stores in full force, according to Ritchie.

“Our creative and value offerings have not resonated with consumers in a heightened competitive environment.” he said. “Despite these difficulties, we remain confident in the long term potential of Papa John’s.”

Hoping Something Sticks

Papa John’s has made multiple attempts to turn sales around in recent months, following its public dispute with Schnatter throughout 2018.

The chain’s latest attempt came earlier this month when hedge fund Starboard Value LP invested $200 million into the company on Feb. 4. After vain attempts to sell itself in recent months, Papa John’s agreed to take Starboard’s funding and appointed CEO Jeffrey Smith as its new chairman, filling the role Schnatter vacated last year.

“Starboard [has] accomplished significant turnarounds and value creation at other companies in the restaurant, retail, and consumer industries,” said Ritchie. “Already, Jeff has been actively engaged as our new chairman, as we evaluate and adjust our plans and strategies for 2019.”

Papa John’s hopes Starboard can do for its same-store sales what the hedge fund did for Olive Garden when it made an investment in the Darden Restaurants’ subsidiary back in 2014. Olive Garden has reported positive same-store sales in 17 consecutive quarters dating back to Starboard’s investment. Darden’s stock price has paced ahead of the S&P 500 over the period, as a result.

Papa John’s also announced 2019 guidance on its earnings call. The company expects between a one percent to five percent loss in comparable store sales for the year in North America. However, international sales, down 2.3 percent in 2018, are expected to be flat or up 3 percent, according to the company.

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