Papa John’s pins turnaround efforts on Shaq, Starboard investmentPapa John’s pins turnaround efforts on Shaq, Starboard investment

Papa John’s International, Inc. cited an improved outlook during an earnings call Tuesday, announcing a new $50 million investment from hedge fund Starboard Value LLP, even as it reported another quarter of declining sales.

The struggling pizza chain reported a 6.9% decrease in domestic same-store sales for the quarter ended March 31, though results did beat investor expectations, buoyed by international same-store sales, which saw a 0.1% decrease. 

Starboard Value LLP initially announced its $200 million investment in the Louisville, Ky.-based chain in February, with the additional option of $50 million at the end of March.

“Our new chairman, Jeff Smith, is actively engaged in the business, leveraging his turnaround experience in the restaurant and retail space and keeping us focused on what matters most: the quality of our pizza and our connection with our customers,” CEO Steve Ritchie said during the call. “We'll carefully allocate this capital in addition to the original $200 million investment to strengthen our balance sheet and make strategic investments to reinforce our brand market position and drive long term performance.”

Ritchie cited a tough January affected primarily by ineffective promotions and customer conversion to the company’s new loyalty program launched in December.

He added that although the company still has a long way to go, Papa John’s saw marked improvements through February and March, driven by the Starboard investment and new board appointments, including the new partnership with NBA legend and entrepreneur Shaquille O’Neal, who will also serve as a brand ambassador. Ritchie hinted that the company would use O’Neal’s public persona in marketing and advertising plans moving forward.

“Shaquille is already very engaged in the board and making an impact on the company, not only in his industry advice and ideas for what we might be doing strategically in the areas of marketing, store design, operations, things connected with the consumer impact of the Foundation,” Ritchie said during Tuesday’s call. “He’s very broad in his reach and very tactical in his efforts and has spent a lot of time in engagement as we build up to the opportunities in advertising.”

The company also cited positive consumer and investor sentiment surrounding the launch of the Papa John’s Foundation for Building Community in March, which awards grants to diverse causes like Boys & Girls Clubs of America.

The moves are part of the brand’s revitalization efforts as its continues to distance itself from the controversial racist words and actions of former CEO and board member John Schnatter. Founder and former CEO Schnatter is currently the company’s largest shareholder, but that may be about to change. According to an SEC filing this week, Schnatter has enlisted the aid of financial advisers to help sell all or part of his 31% majority stake in the company.

Papa John’s, meanwhile, continues to tweak its menu. With the launch of six new $12 specialty pizzas in March, including Ultimate Pepperoni, Meatball Pepperoni, Philly Cheese Steak, Fiery Buffalo Chicken, Zesty Italian Trio and the Super Hawaiian, the company is experimenting with a mix of premium and value price points to encourage new guests and entice loyal customers.

“We saw nice traffic growth providing net accessible value as we try to work through the balance of the high-low side of our proposition to the brand,” Ritchie said during the call. 

For the quarter ended March 31, revenue decreased 11.5% to $398.4 million, compared with $450.1 million in the same period a year earlier. The company reported a net loss of $3.8 million or 12 cents per share, down from a net income of $17.4 million or 52 cents per share in the same period a year earlier.

Papa John’s opened 33 stores systemwide for the first quarter ended March 31, 2019, driven by international operations. As of March 31, Papa John’s has 5,336 locations worldwide.

Contact Joanna Fantozzi at [email protected]

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