- Papa John's misses on earnings and revenue for its fourth quarter.
- The pizza chain expects North American sales will continue to decline in fiscal 2019.
- Same-store sales in the region could fall between 1 and 5 percent.
Papa John's International once again fell short of analysts' expectations for its fourth-quarter earnings and revenue — and the embattled pizza chain is forecasting more struggles ahead.
Same-store sales in North America decreased by 8.1 percent during the latest period. During a conference call with analysts, CEO Steve Ritchie acknowledged the issue.
"The North America results are disappointing to all of us," he said, going on to explain that promotional efforts aimed at boosting loyalty are weighing on sales results. Papa John's sales have suffered since it was revealed that John Schnatter, its founder and former CEO and chairman, used a racial slur on a conference call.
Outside of North America, same-store sales saw smaller declines of 2.6 percent.
Papa John's is predicting that North American sales will continue to decline in fiscal 2019, with same-store sales in the region expected to fall between 1 and 5 percent. On the other hand, it is expecting that international same-store sales will be flat or increase up to 3 percent.
Shares of the company were up more than 2 percent in extended trading.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: 15 cents, adjusted, vs. 17 cents expected
- Revenue: $374.0 million vs. $390.1 million expected
Earlier this month, activist hedge fund Starboard Value invested $200 million in Papa John's. Chief Executive Jeffrey Smith, who is credited with turning around Darden Restaurants, is now chairman of the company's board.
In the fiscal fourth quarter, Papa John's swung to a net loss of $13.8 million, or 44 cents per share, from net income of $28.5 million, or 81 cents per share, a year earlier.
Excluding the costs of financial assistance to North American franchisees and the company's special committee, the pizza chain earned 15 cents per share, falling short of the 17 cents per share expected by analysts.
Net sales fell 20 percent to $374.0 million, missing expectations of $390.1 million. Ritchie told analysts that the company's promotions and recently relaunched loyalty program put pressure on quarterly revenue without resonating with consumers. To encourage customers to join the program, the pizza chain was offering a variety of deals, including free cheese sticks when customers spent more than $12.
So far in February, the company is already seeing "very solid improvement," Ritchie said.
He also expressed optimism about the loyalty program's ability to boost sales over time, in part because of the customer data it provides. Papa John's plans to use the data to better target customers for promotions. For example, the company is currently testing offerings for customers who prefer carryout.
After distancing itself from Schnatter, who still holds a 31 percent stake in Papa John's, the company has been further trying to amend its public image. It spent $2.2 million during the fourth quarter — and $5.8 million total during fiscal 2018 — on reimaging costs. In January, the Papa John's Foundation gave a $500,000 grant to Bennett College, a struggling historically black college for women.
The company said it will focus its marketing and advertising on the claim that it uses better ingredients than its competition. It will roll out a new TV and digital ad campaign next month based on that message.
Papa John's is leaning on new products to drive sales in 2019. In March, it plans to release six new specialty pizzas, such as Ultimate Pepperoni and Zesty Italian Trio. Later this year, it will release the Hot Honey and Chicken Waffles pizza, the winner of a Twitter poll it conducted. It has also been testing sandwiches in various regions nationwide.
For fiscal 2019, the company is targeting earnings of $1.00 to $1.20 per share, excluding special charges. Those special charges are expected to include $30 million to $50 million in assistance to North American franchisees. Analysts were expecting full-year earnings of $1.20 per share, on the higher end of that range.
Papa John's plans to add between 75 and 150 net new stores during the year.