Despite beating Wall Street expectations overall, C-suite executives at Papa John’s, including founder John Schnatter, stated that the recent NFL controversy and declining NFL ratings forced sales at company-owned stores in the United States to decline.
“When the NFL is declining and you are spending a significant amount of investment … it has an impact,” Steve Ritchie, president of Papa John’s, told analysts during an earnings call Wednesday morning.
The NFL’s ratings have declined 5 percent compared to last year, according to Sports Illustrated. The average viewership is 15.1 million people this season.
Meanwhile, sales at domestic company-owned restaurants decreased 1.4 percent to $196 million during the third quarter, according to the company’s earnings filing.
The decline is a direct result of the NFL controversy and poor leadership within the organization, according to Papa John’s executives.
Some NFL players and team owners have been in a battle over the players’ right to protest racial inequality in the U.S. by kneeling during the national anthem. President Donald Trump tweeted that people should boycott the NFL, calling the kneeling disrespectful.
“The NFL has hurt us. Most importantly, by not resolving the current debacle to the players’ and owners’ satisfaction, the NFL leadership has hurt Papa John’s shareholders,” Schnatter told analysts Wednesday.
The company reupped its multiyear contract with the NFL and increased its investment in the partnership just last year; Papa John’s did not say how many years were added to the contract or how much it is contracted to invest.
Schnatter, a conservative Republican, called the NFL a “long and valued partner” and said he believes the organization’s best years are ahead of it, but he called the controversy an example of poor leadership.
“This should have been nipped in the bud a year and a half ago,” he said.
Last year, Schnatter said, the company was able to mitigate declining sales that came as a result of lower NFL ratings by creating excitement around the launch of its new pan pizza option. Last year, ratings suffered because it was an election year, he said.
“This year, the ratings are going backwards because of the controversy. The controversy is polarizing the customer, the controversy is polarizing the country,” Schnatter said.
As of mid-afternoon, Papa’s John’s stock had dropped 8.2 percent to $62.47.
Although executives spent a good amount of the earnings call talking about the negative impact of the NFL controversy, Papa John’s overall revenues, net income and earnings per share were all up during the third quarter. Revenues rose 2.2 percent to $431.7 million, exceeding predictions; net income rose 1.6 percent to $21.8 million; and earnings per share increased 5.3 percent to $0.60 per share.
Same-store sales in North America were up 1 percent during the third quarter and up 5.3 percent at international same-store sales. Schnatter said the company is on track for 14 consecutive years of positive same-store sales in North America.
Papa John’s executives said the company is investing in improved technology, store redesigns and a third-party consultant that will make recommendations to improve efficiency. The company will place a heavy focus on how consumers can interact with the brand through their phones.
“We are really driving the system hard to connecting to as many environment and channels where a customer might actually be thinking about food, thinking about meal choices, so it makes it simpler, faster, easier and far more effective for them to engage our brand and order pizza from us,” said Mike Nettles, Papa John’s senior vice president and chief information and digital officer.
The company’s new chief marketing officer Brandon Rhoten noted later in the call that Papa John’s will look to pull back its spending on traditional television advertising as it improves its digital and technology drive marketing tools.
“We are not going to need to compete dollar for dollar in TV,” he said.
Earlier this year, Rhoten said Papa John’s is morphing into an e-commerce company, with 60 percent of its sales coming from digital platforms.