Papa John's Failures Can Be Measured in the Double Digits

As expected, Papa John’s third-quarter sales plummeted in the wake of a very public clash with former CEO and founder John Schnatter.

The pizza chain reported a total loss of $13 million on Tuesday, along with a year-over-year 15.7 percent decline in revenue. System-wide sales in North America were also down almost 10 percent, while international same-store sales declined 3.3 percent.

“Third quarter results continue to reflect the brand challenges we have faced this year and were exacerbated by the negative impact of the media coverage,” said CEO Steven Ritchie, on a conference call with investors. “During the quarter, we took important actions to help repair our brand reputation and we believe good progress has been made.”

Papa John’s excluded $24.8 million in “special charges,” or “costs and expenses in response to recent events,” in its adjusted earnings. These included $3.6 million to remove Schnatter from its marketing materials and an additional $9.9 million in financial assistance to domestic franchisees — in the form of short-term royalty reductions — to mitigate closings. The remainder was spent on an ongoing third-party audit into the company’s culture, according to Chief Financial Officer Joseph Smith.

On the Long Comeback Trail?

Customer sentiment has gone by the wayside at Papa John’s since the company’s feud with Schnatter began in July, the same month public relations company Initiative dropped the pizza chain as a client after Schnatter used a racial slur during a spring conference call.

After the company reported weak earnings in the second quarter that included a 6.1 percent decline in same-store sales for the year, Schnatter published a critique of the company’s leadership, including Ritchie. In it, he acknowledged that he is not interested in returning as CEO, but wants to have a role in plotting a comeback for the chain.

Those rebuilding plans are sure to go on without his help. But they do rest on partnerships with Facebook and DoorDash to strengthen off-premise sales, new voice ordering capabilities through Amazon’s Echo device, and a Schnatter-free Voice of the Papa John’s marketing campaign that began in September.

“We had a strong, positive response from internal and external stakeholders to the voices campaign,” said Ritchie. “Employees and franchisees expressed their appreciation for sharing a light on the real values and people who make up our company. Customers also responded positively, which shows that the strategy to move in the new, more modern and inclusive marketing direction is the right one.”