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Papa John’s continues to struggle as 3Q same-store sales slide 9.8 percent

But comps bounced back from a 10.5 percent drop earlier in quarter

Papa John’s International, Inc.’s struggles continued during the third quarter, ended September 30, with a 9.8 percent drop in North America same-store sales and 3.3 percent decrease in international same-store sales, though the quarter finished “slightly ahead of expectations,” the company said on Tuesday.

Same-store sales had slid 10.5 percent in the early part of the quarter, following the resignation of John Schnatter as chairman of the board in July, but improved by 2 percentage points in September. Papa John’s management attributed that upswing to the launch of the “Voices of Papa John’s” ad campaign in September, which featured diverse franchisees and employees.

Revenue dropped 15.7 percent to $364 million, while net income fell to a loss of $13 million or 41 cents per share, down from positive $21.8 million or 60 cents per share. Papa John’s attributed the loss to lower same-store sales across North America, the refranchising of stores in North America and internationally, and special costs associated with brand reparations, including a third-party audit of company culture. The special one-time charges are expected to total $50 million to $60 million for the fiscal year.

Papa John’s is still recovering from a whirlwind year of scandal and negative public sentiment, following revelations of Schnatter’s multiple controversial comments, including a racial slur during a conference call. Although Schnatter has since stepped down as chairman and CEO of Papa John’s, he still owns 30 percent of the company and has two outstanding lawsuits against the company.  

In October, Schnatter asked Papa John’s to amend the so-called “poison pill” provision, which would prevent him from working with potential stock buyers, thereby protecting the company from a hostile takeover involving him. 

Throughout the continued confrontations between Schnatter and current management, the company has attempted to make the climb back into the public and investors’ good graces:

“As we entered the fourth quarter, we are pleased with the quick actions we've taken, and the progress being made against a tough environment and unique challenges,” Steve Ritchie, Papa John’s president and CEO said during the earnings call Tuesday.

Following the third-party audit, Ritchie said the company would be introducing diversity, equity, and inclusion training for the corporate team, and later, for franchisees in early 2019. The company also aims to improve brand differentiation as well as customer experience through product innovation and more interaction with the Papa John’s app.

“While the challenges that have been created for our company are still there, you're seeing early indications that our improvement actions are working,” said Ritchie. “The improved consumer sentiment in North America, our stabilizing comps, the outspoken support both internally and externally, our significant international white space, and our continued strong cash flows all support our confidence for the future.”

During 3Q, Papa John’s opened a net 48 stores, driven by international openings. It closed 85 stores in North America, giving it a total of 5,247 locations worldwide at the end of the quarter.

The company narrowed its previous earnings-per-share outlook for the year from $1.30-$1.80 to $1.30-$1.60.

Contact Joanna Fantozzi at [email protected]

Follow her on Twitter: @JoannaFantozzi

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