Papa John's stock plummets as it shifts its focus from sports to deals for cheaper pies

Key Points
  • Papa John's is struggling to find its identity as sales continue to slump and competition in the pizza space stiffens.
  • The company is offering up value deals to lure in customers who thought the brand was too expensive.
  • Papa John's is bringing in a new chief marketing officer as it mixes up its strategy.
Papa John's Pizza
Source: Papa John's

Papa John's shares are selling off Wednesday morning after its latest earnings report showed the company is struggling to find its identify in the wake of its founder and CEO's departure in December.

Sales at Papa John's have been slumping for several quarters as the company struggled to get new promotional offers to stick and as it failed to differentiate itself in a highly competitive pizza space.

Earnings in the latest period missed on the top and bottom lines, sending shares down about 6 percent on Wednesday morning.

Papa John's same-store sales have been on the decline since late 2016, but did not turn negative until this year. CEO Steve Ritchie, who took the helm in January from founder John Schnatter, has said customers perceive Papa John's as being too expensive.

To combat this perception, the pizza chain launched a $12.99 Papa's Meal Deal, a large, one-topping pizza, a choice of a bread side and a 2-liter drink.

"We're just a month in and we are already starting to see value perception improvements from this work," Ritchie said on the earnings conference call Tuesday.

Ritchie said Papa John's is in a "test and learn phase" when it comes to value, where it is figuring out what customers want from the brand as it goes along. It is also mixing up its marketing strategy, including bringing in a new chief marketing officer.

"We'll be initiating a search for a new marketing leader that has the necessary skills to execute the strategy with urgency and agility," he said on the call after the earnings report. "Given my conversations over these past 100 days and as a franchise owner myself, I know this company has a lot of upside ahead. But we need to be faster in improving how we communicate and connect with consumers to improve results."

Papa John's is still working to overcome comments made by its former CEO that blamed the National Football League's leadership for not resolving an ongoing controversy over players kneeling in protest during the national anthem.

Papa John's and the NFL mutually agreed to terminate their partnership in February. Papa John's had been the official pizza of the NFL since 2010.

"We still intend to activate against the NFL and we got some other creative things that the team has been working on so that we can be involved in the NFL in a new way and engage with those consumers at the same time knowing that we need to attract new audiences," Ritchie said Tuesday. "We can't be solely focused on sports or the NFL."

Ritchie is hoping to reinvent the company as a more tech-savvy, value-oriented restaurant that isn't reliant on sports marketing for sales. He said on the call the company will be investing more in technology and mixing up how it advertises to consumers.

Rivals Pizza Hut and Domino's Pizza have been using discounts and loyalty programs to lure customers — and it's working. Pizza Hut's same-store sales were up 1.8 percent in the first quarter and Domino's saw same-store sales spike 8.3 percent in the U.S.

In comparison, Papa John's reported that same-store sales in North America fell 5.3 percent in the first quarter, a steeper dive than the 4.8 percent that analysts surveyed by StreetAccount had expected.

Papa John's said net income fell to $16.7 million, or 50 cents per share, from $28.4 million, or 77 cents per share, in the year-earlier period.

Total revenue fell 4.9 percent to $427.4 million, falling short of estimates of $439.5 million, according to Thomson Reuters.

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