Economy

Papa John's to shell out up to $50M to remake its image

Papa John's to shell out up to $50M to remake its image

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".

"Instead of addressing the real and fundamental issues. the company is trying to deflect attention from the source of the problem - management's ongoing failures with regard to financial performance - and blame me for its problems", Schnatter said.

"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 exclusively on Schnatter's shoulders.

Then, for July, the drop steepened to 10.5 percent at established North American locations, the company said Tuesday.

Schnatter would admit the remark and apologize, but later say his words were taken out of context and that he regrets giving in to pressure step down as chairman of the company's board.

For the year, Papa John's now expects sales to fall 7 percent to 10 percent at established North American locations. And of course, the images of that one person it depended on for so long are hastily being wiped from marketing materials such as pizza boxes and logos.

Papa John's shares are down more than 20% so far this year.

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Putting aside things the company is working on - including changing pricing after doing a study at every one of its USA restaurants, a third-party audit of company culture, possible discussions with lenders, its possible financial assistance for franchisees, such as short-term reductions in royalty payments, to keep them from shutting down, and its partnership with DoorDash to expand delivery to zones restaurants don't cover - there's a lot to be done to fix the brand.

Papa John's has banned Schnatter from all media appearances and enacted a "poison pill" measure to prevent Schnatter from acquiring a controlling stake in the company. And Ritchie used two of the industry's buzzwords, saying the brand needs to do better to reach, that's right, millennials and Gen Z.

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. Schnatter initially drew scrutiny last November when, while still serving as Papa John's CEO, he blamed a sales decline on the company's relationship with the NFL and its handling of player national anthem protests. A $12.99 bundle didn't help sales much in the second quarter. He said in a statement that he is 'not going away'. "Accessible value does have an important role to play", he said. For now, Ritchie is overseeing marketing, as he has been since the May departure of short-tenured CMO Brandon Rhoten.

"Sometimes the greatest opportunities happen in the most inopportune times. We have also begun an external audit of Papa John's culture and will address any improvements that are recommended at its conclusion".

Schnatter stepped down as Papa John's CEO last January.

Revenue was down by 6.2 percent to $408 million and net income fell by just under 50 percent to $11.8 million, or 36 cents per share, down from $23.5 million, or 65 cents per share in the quarter ended June 25, 2017.


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