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Papa John’s attributes sales slowdown to weak NFL ratings

Same-store sales rose in 4Q, but failed to meet investors’ expectations

Papa John’s stock fell 8 percent on Wednesday, after the company reported weaker-than-expected same-store sales in the fourth quarter ended Dec. 25.

The reason for the sales weakness? Bad NFL ratings.

“We’ve seen ratings down 8 percent for the season,” said Steve Ritchie, Papa John’s International Inc. president and chief operating officer, during an earnings call Wednesday. “We’ve made a significant investment in the NFL. An 8-percent decline in ratings played a small factor in some of our performance.” 

Papa John’s reported 3.8-percent same-store sales growth in North America for the quarter, and a 3.5-percent increase for the year. Executives cheered the numbers, with CEO John Schnatter calling it “another year of strong performance.”

Indeed, same-store sales at the 5,000-unit chain have increased for 25 straight quarters, and have been flat or positive for 13 consecutive years.

The fourth-quarter number was also one of the strongest performances among U.S. restaurants that have so far reported earnings for the period. 

That led to record sales and profitability both at Papa John’s corporate and franchise levels, Ritchie said. It also makes the chain one of the better performers in a restaurant industry struggling with weak traffic.

“We feel very good about the overall trends we’re seeing,” Ritchie said.

But investors expected more. The Louisville, Ky.-based operator introduced pan pizza in October. The item was well received, and it was expected to generate incremental sales. For instance, Instinet analyst Mark Kalinowski expected 6.1-percent same-store sales growth.

In addition, Papa John’s forecast same-store sales growth of 2 percent to 4 percent on the year. During the earnings call, executives said same-store sales have softened so far this year, again due in part to NFL ratings. 

Executives said it wasn’t just the NFL ratings, but the teams that made the playoffs. A year ago, the Denver Broncos, led by Peyton Manning, won the Super Bowl, giving Papa John’s — which counts Manning as a spokesman and a franchisee — a major tailwind. Manning has since retired.

Executives also suggested other factors.

Ritchie said the company reduced some marketing when it introduced pan pizza to give operators time to adapt to the change.

“That was very much intentional,” he said.

Executives also said that competitors priced their pizzas more aggressively in the quarter, as Papa John’s introduced the pizza.

“Some of our other competitors were doing $6 or $7 [pan pizzas],” Schnatter said. “We were doing $10 pans.”

Still, executives are enthused about the early reception of pan pizza among consumers. The company said customers have given “good feedback.” They said it’s too early to tell whether the product will generate repeat business, but they still view the pizza as “an opportunity to not only drive frequency; it’s an opportunity to take share,” Ritchie said.

The company is working to respond more aggressively. Ritchie said on the earnings call that Papa John’s has reached a multi-year deal with domestic franchisees to gradually increase their ad fund contribution from 4 percent to 5 percent of sales. That would enable the company to increase its digital marketing, in particular.

Papa John’s is one of the most digitally savvy chains in the restaurant industry, with digital orders approaching 60 percent of all business. Executives fully expect that percentage to grow.

Papa John’s is working even more to bolster that effort. Earlier this month, the company hired Panera Bread Inc. veteran Mike Nettles as its chief digital and information officer.

Executives said digital will help the company improve its speed. But they also want to leverage Papa John’s loyalty program to target customers more specifically.

“We are only scratching the surface,” Ritchie said. “We have a vast, evolving digital landscape and a strong framework in place.” 

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze 

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