Papa John’s president and CEO, Steve Ritchie, was quick to acknowledge that the Louisville pizza chain has had a “challenging” few weeks amid the controversy with the company’s founder but said he and other leaders are confident that they can turn sour sales numbers around.
“Improved financial performance will take time,” Ritchie said during an analyst call Tuesday evening.
“The recent events are further evidence that we need to move on” from founder John Schnatter, he added.
Sales tanked during the first six months of this year, according to the company’s second-quarter earnings report. Revenue decreased 5.5 percent, to $835 million, during that time, while net income dove 45.6 percent, to $42 million.
The company attributed the declines to lower same-store sales in North America, which resulted in lower revenue at company-owned stores, fewer royalties and a decrease in commissary sales. Same-store sales in North America during the second quarter dropped 6.1 percent; international same-store sales also declined slightly but by less than 1 percent.
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.
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.
The chain’s earnings per share during the first six months decreased 31 percent, to $0.98, according to its second-quarter earnings release. Papa John’s subsequently lowered its earnings per share outlook for 2018 to between $1.30 to $1.80, from a prior range of $2.40 to $2.60.
Papa John’s shares ended the day down nearly 3 percent, at $41.07. The stock continued to drop in aftermarket trading, dipping more than 10 percent as of 5:20 p.m. Tuesday.
The second-quarter numbers do not reflect any blowback from the recent controversy but are a continuation of reported sales declines starting in the latter half of 2017.
The company faced decreases in sales after Schnatter blamed the poor numbers on NFL player’s protests of racial inequality. Schnatter later stepped down as CEO of Papa John’s, but recently became the topic of public scrutiny again.
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.
Quickly after, Schnatter’s name was removed from Nachand Fieldhouse in Jeffersonville, Ind., and the Center for Free Enterprise at the University of Louisville. UofL also removed Papa John’s name from Cardinal Stadium and a number of major sports teams discontinued Papa John’s promotions following the news.
Announcements came out that Schnatter resigned from the UofL board of trustees and Papa John’s board of directors as well. Since then, Schnatter told media that leaving Papa John’s was a mistake and asserted that he was forced out without a proper investigation. He has filed a lawsuit seeking access to company documents; it remains unclear if he will fight UofL’s decision to wipe his and the Papa John’s name from campus.
After the initial report by Forbes, the media company published another story, citing sources describing a “toxic culture” at Papa John’s and created by Schnatter.
Schnatter remains on the defensive, trashing Papa John’s current leadership. In a statement to CNBC after the earnings release, Schnatter said: “As I communicated to the board as early as December 2016 and several times in 2017, I am seriously concerned about the company’s declining sales, financial performance and, most importantly, the direction the company headed under the stewardship of Steve Ritchie and the current board of directors. The financial results announced today further exemplify that concern.”
Meanwhile, those left in charge of the pizza chain are scrambling to defend the company’s sales. Papa John’s recently announced on social media that it is conducting a listening tour to hear concerns from franchisees and other stakeholders.
Ritchie highlighted the listening tour and said the company is working on other initiatives to ensure that equity, inclusion and respect are top priorities within Papa John’s and to regain the trust of consumers.
During the call with analysts, he presented a strong front, stating that franchisees support the actions the company is taking following the initial controversy with Schnatter.
“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 solely on Schnatter’s shoulders.
This post has been updated.