Schnatter believes Papa John's can reverse negative trends

Sept. 11, 2003

LOUISVILLE, Ky. -- While Papa John's has reported sales declines in 11 of the past 16 months, the company's chairman and CEO, John Schnatter, remains optimistic that the world's third-largest pizza chain can reverse its negative fortunes.

According to a report in The Wall Street Journal, though Papa John's once was a Wall Street darling, the four brokerage firms which still follow its stock rate it everywhere from "sell" to "neutral" to "hold."

Schnatter told the Journal that Papa John's rapid growth throughout the 1990s yielded a company too large to manage with current staff.

"With 700 stores, I had my arms around this (business). With 2,800 we outran our management," said Schnatter.

Ever determined and optimistic about his company, Schnatter said initiatives (on which Papa John's has spent $6.5 million) underway to turn the chain around are working. "(I)n the last 100 days we've made great strides. ... I'm seeing healthy trends."

While the company has more than 2,900 units in 49 states and 11 foreign countries, net new unit openings were just 14 for 2002. Schnatter attributed the modest gains to the ever-competitive pizza segment, which also is facing a vigorous challenge from a host of foodservice options.

"Frozen pizza has gotten better. Take-and-bake has gotten better," Schnatter told the Journal. The growing volume of takeout at casual dining restaurants has hurt the segment as well, he said. "I'm hearing it will be a billion-dollar industry. You put all those folks together and that hurts the pizza business."

Schnatter, who chastised franchisees publicly last year for poor performance, remains critical of the attitude of PJ's operators.

"I'll sit down with a franchisee who has bad product, bad service, who hasn't put any money back into the business, who hasn't been in his store once in two months, and he'll look me right in the eye and say, 'What are you going to do to fix my business?' " Schnatter said.

Regarding the company's continued stock buyback program, as well as Schnatter's own 29.7 percent ownership stake in the company, the Journal asked if he has considered taking the company private.

"I like being public, (but) I'm not sure I'd be as aggressive with stock buybacks if I knew the category was going to go as negative as it has," he said.

In the past three years, Papa John's spent $345.7 million on share repurchases, which reduced the number of outstanding shares by nearly 44 percent.

Topics: Financial Management , Operations Management , Papa John's , Public Companies

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