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Papa John’s: 'Actions of 1 person' could cost brand $50 million this year

Leadership at Papa John’s took on the woeful task last night of talking to investors about the brand’s devastating second quarter financials, vowing not to let the future of the world’s third-largest pizza brand "be defined by the words and actions of one person."

August 8, 2018 by S.A. Whitehead — Food Editor, Net World Media Group

Leadership at Papa John's took on the woeful task last night of talking to investors about the brand's devastating second quarter financials, vowing not to let the future of the world's third-largest pizza brand "be defined by the words and actions of one person." In that Q2 financials call with shareholders Tuesday night, CEO Steve Ritchie cited culture and business improvements the company will address following the racially derogatory remarks Papa John's founder John Schnatter allegedly made during a May media training call. 

Ritchie addressed the company's investors during leadership's overall report on the brand's Q2 performance, which showed a 10 percent plummet in North American sales in July — the month that news of Schnatter's media training call comments was publicized in a Forbes article. Additionally, the entire second quarter's results also fell just over 6 percent, while leadership told investors the whole brand crisis could ultimately cost the company $30 million to $50 million this year. 

Other key financial results from Q2 include: 

• Adjusted earnings per diluted share fell 24.6 percent from 65 cents in last year's quarter to 49 cents this Q2.
• North America comp sales fell 6.1 percent. 
• International comp sales fell 0.8 percent, but total international sales grew 12.2 percent, driven by 35 net new unit openings. 
• 34 company-owned Chinese stores refranchised. 
• Adjusted EPS outlook fell $1.30 to $1.80 due to negative sales. 

"Earlier this year, we began implementing key changes in how we operate and market our products to refocus on quality and better connect with customers," Ritchie said. "While results have been challenged by recent events, we are committed to these strategic priorities and continue to believe that they will lead to enhanced performance. 

"We have also begun an external audit of Papa John's culture and will address any improvements that are recommended at its conclusion. Our entire leadership team understands the importance of getting our culture and business improvements right."

But just as Ritchie was telling investors that Schnatter's public words both in May and following the crisis have been "inexcusable," Schnatter was winding up to pitch his response to the stockholders' call and Q2 results. In that response, he essentially blamed the company's current top brass for the sales declines, making no mention of his media training call comments. 

Schnatter stated in a prepared response that "history shows that the company performs better with me involved, and it declines when I step away. I have little doubt that the company's financial performance will continue to deteriorate under the current CEO and board of directors."

Though Schnatter remains on the board and holds nearly 30 percent of the company's stock, he has forfeited his CEO and board chair posts, and even been stripped of his office at the company's Louisville headquarters. 

The company also said in the call Tuesday night that it does not expect to repurchase any more shares in 2018 after the current trading plan expires in early August.

Photo: iStock

About S.A. Whitehead

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Pizza Marketplace and QSRweb editor Shelly Whitehead is a former newspaper and TV reporter with an affinity for telling stories about the people and innovative thinking behind great brands.