News

Papa John's faces investors with dismal Q4 financials

February 27, 2019

Papa John's lousy 2018 got a bit worse late Tuesday when the firm's leaders reported that North American store sales dropped 8 percent in Q4, ending Dec. 30, 2018, compared to Q4 2017. Internationally, same-store sales fell 3 percent. 

Other numbers from the late Tuesday Q4 and FY 2018 financials release included: 

• 72.2 percent drop in adjusted earnings per diluted share in Q4 2018 over the prior year quarter. 
• 46.6 percent drop in FY 2018 earnings per diluted share ($1.34) versus the prior year ($2.51). 
• 7.3 percent drop in FY 2018 system-wide North American comp sales.
• 8.1 percent drop in Q4 2018 system-wide North American comp sales. 
• 11 percent total Q4 international sales increase and 13.3 percent growth for FY 2018 international sales, driven by unit growth. 
• 56 net unit openings in the fourth quarter and 104 for the full year, driven by international growth.
• Cash flow from operations of $72.8 million and free cash flow of $30.8 million for 2018,

The effects of the last year's very public problems at the pizza brand were obvious in the year-end numbers. ITstarted with the chain's founder, John Schnatter, in the eye of an extremely negative media whirlwind after blaming flagging sales on Papa John's then-sponsorship of the player protest-embroiled NFL in late 2017. Then, as that issue died down, news broke that Schnatter had reportedly made aracial slur during a media training call. Ultimately, Schnatter was ousted from his role as board chair, after resigning as CEO in late 2017, and a public tiff began between Schnatter and the chain's leadership over the whole affair. 

Naturally, it's all taken a heavy toll, with Papa John's reporting a Q4 2018 loss of $14 million, or 44 cents per share, down from a Q4 2017 gain of 81 cents, the company said Tuesday. Overall — excluding one-time items — Papa John's fell short of analysts' earnings predictions for the period, posting earnings of 15 cents per share. Likewise, revenue dropped 20 percent in that same period to $374 million. 

The company predicted FY 2019 earnings of $1 to $1.20 per share, excluding special items. 

Effects of Starboard's $200M

Starboard Value this month invested  $200 million into the brand, however, and CEO Jeff Smith — credited with the turnaround of Olive Garden —was name Papa John's board chair. Tuesday, Smith expressed confidence in the brand's future.

"Over the past few weeks, I have met with many of our team members and franchisees and am excited by their ideas, passion and dedication to Papa John's," Smith said.

For his part, CEO Steve Ritchie acknowledged the past year's problems and admitted that the brand has "a lot of work to do" to turn the tide. He said with the help of new menu items and other initiatives, the brand hopes to begin its turnaround. 

"I am confident in the long-term success of Papa John's," Ritchie said in the release. "With the additional $200 million of financial resources from Starboard, we will make targeted investments in the highest return initiatives that showcase our quality and improve the customer experience. We remain focused on people and pizza and continue to be enthusiastic about the opportunities ahead."