Papa John's sales don't deliver following founder controversy

Papa John’s same-store sales slide 6.1 percent

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Papa John's Pizza CEO John Schnatter is seen on March 31, 2012 in Las Vegas, Nevada. We didn't know they'd be this ugly.

During a call with analysts, CEO Steve Ritchie said the company needed to "move on" and that the chain shouldn't be dependent on a single person.

Negative publicity surrounding the incident depressed July traffic in North America, the company said in a statement, noting that it was hard to predict how long and how badly that would affect sales. Meanwhile, founder John Schnatter tried to put his own spin on Papa John's poor performance, saying history shows that it does better when he's involved and declines when he steps away.

Schnatter criticized Papa John's in a statement released immediately after the company reported weaker-than-expected second-quarter earnings.

Papa John's has made the news steadily during the past month after the company's leaders pushed out Schnatter following a report that he used a racial slur. Schnatter, who groomed Ritchie for the top job, was CEO until December 2017, when Schnatter gave up the post in the wake of the National Football League comments.

Even before the controversy came to light, Papa John's said Tuesday that sales fell 6.1 percent at established North American locations.

Papa John's reported that same-store sales decreased about 10.5 percent in July and it is projecting that same-store sales for the full year will decline 7 percent to 10 percent.

Before the controversy, the company had forecast the figure to be flat to down 3 percent. And it's going to spend $30 million to $50 million on a variety of plans.

"Instead of addressing the real and fundamental issues. the company is trying to deflect attention from the source of the problem - management's ongoing failures with regard to financial performance - and blame me for its problems", Schnatter said.

Back to the company itself.

"We are working to show that our future will not be defined by the words and actions of one person", Ritchie said, placing the blame exclusively on Schnatter's shoulders.

At another point, Ritchie called Schnatter's comments "very inexcusable and irresponsible". And it hired Nimbus in June as its first multicultural agency, Papa John's said Tuesday. "Franchisees and partners have expressed overwhelming support for ... our decision to remove John as brand spokesperson".

Other headwinds included higher commodity and wage costs and the re-franchising of Papa John's stores in China, which resulted in a $1.6 million loss during the second quarter, the company reported.

"I couldn't be more excited than I ever have been in my 22 years with the Papa John's brand to flip the switch and look forward (and) not be distracted by the words and comments of one individual", Ritchie said. A $12.99 bundle didn't help sales much in the second quarter. Pizza Hut replaced Papa John's as the NFL's official pizza sponsor last February.

"Sometimes the greatest opportunities happen in the most inopportune times".

Schnatter stepped down as Papa John's CEO last January. "We have also begun an external audit of Papa John's culture and will address any improvements that are recommended at its conclusion".

Shares of Papa John's closed down almost 3 percent, and slumped an additional 10 percent after the bell.

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