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As Papa John's Q1 sales fall, CEO tells investors, 'Lasting consumer sentiment change takes time'

May 8, 2019

As Papa John's founder John Schnatter mulls selling his 31% stake in the chain, the brand reported continued Q1 2019 losses, equaling 12 cents a share or $3.8 million. CEO Steve Ritchie told stockholders in a call Tuesday that much of that loss was the result of the brand's costly initiatives to help it dig out of the hole left after news broke that Schnatter's allegedly made a racial slur on a media training call last May. 

For stockholders that meant a hefty drop in earnings per share from Q1 2018 when they netted 52 cents per diluted share. In the first quarter of this year, however, that adjusted earnings per diluted share dropped to 31 cents, excluding special charges.

Additional key highlights of the company first-quarter performance include: 

• Sales fell by 11.5% to $398.4 million.
• 6.9% decrease in North American system-wide comparable sales.
• 0.1% decrease in international comparable sales, though international franchise sales grew 10.5%, excluding the impact of foreign currency.
• 33 net unit openings driven by International operations.
• Provided $4.9 million in financial assistance to U.S. franchisees in reduced royalties. 
• Spent $5.1 million on legal fees (from Schnatter's lawsuits against Papa John's and analyses resulting Starboard Value's investment.) 
• Issued $252.5 million of Series B Preferred Stock to certain funds affiliated with, or managed by, Starboard and certain franchisees.
• The company reiterated its full-year outlook, anticipating adjusted earnings per share in range of $1 to $2 and North American same-store sales falling by 1%.

"Lasting consumer sentiment change takes time, and we expect it will continue to be headwind for our North American business in the second quarter," CEO Steve Ritchie told investors during the earnings call. "As a result, we are holding guidance for North America comps to negative 1% to negative 5% for the full-year. Still, I'm confident we are making significant progress to realize Papa John's long-term potential."