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Papa John's is still struggling to bring customers back

Papa John's efforts to ...

Posted: Nov 7, 2018 2:25 AM
Updated: Nov 7, 2018 2:25 AM

Papa John's efforts to distance itself from its controversial founder aren't bringing back customers.

The beleaguered pizza company said on Tuesday that same-store sales in North America fell by 9.8% in the three months ending in September. Total revenue dropped 15.7% from a year earlier to about $364 million.

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Founder John Schnatter resigned his role as chairman in July after news broke that he had used the N-word on a conference call.

"The negative publicity surrounding the company's brand that began in July 2018 has continued to impact the North America system-wide sales," Papa John's (PZZA) noted in its earnings release on Tuesday.

Schnatter stepped down as CEO months earlier after he caused a controversy by blaming the NFL for poor pizza sales.

Papa John's has tried to make over its image with a new ad campaign featuring a diverse panel of franchisees and employees. The ad distances the company from Schnatter, who was once featured in Papa John's promotional materials. "You've heard one voice of Papa John's for a long time," one employee says to the camera during the ad. "It's time you heard from all of us," said another.

The "campaign drove a modest improvement in traffic," and same-store sales were better in September than in July and August, CEO Steve Ritchie said during a Tuesday earnings call.

In addition to the ads, Papa John's took several steps to distance itself from the controversies.

The company is conducting an internal audit on diversity and inclusion practices, launching a program to support minority-owned franchises and starting a foundation focused on local communities. In August, it promised to help out struggling restaurant owners by cutting some royalties, food prices and online fees for the remainder of the year. The company also vowed to roll out mandatory bias training for its workers.

The training will start this month for its 14,000 team members, and should conclude in early 2019. Franchisees will also receive training.

Ritchie said the results were actually better than expected.

"During the quarter, we took important actions resulting in improved consumer sentiment and North America comp sales that were slightly ahead of expectations," he said.

Ritchie said pizza promotions available through the company's mobile app are helping sales. He also said a recent management reorganization, announced in October, sets the company up for success.

The company is "committed to building on this momentum," he said.

While it tries to revamp its image, Papa John's has been fending off fierce attacks from Schnatter.

Schnatter accused the current leadership of allowing his comments to be misrepresented in the media. He has called Ritchie the wrong man for the CEO job, and said that he helped create a toxic culture rife with harassment and intimidation.

A special committee of the Papa John's board responded to Schnatter's many claims in a scorching letter, accusing him of "promoting his self-interest at the expense of all others in an attempt to regain control." Schnatter has said he regrets resigning as chairman, but that he doesn't want to regain his role as CEO.

Meanwhile, rumors have been swirling that the pizza chain is looking for a buyer.

Other pizza sellers have had a difficult quarter. Pizza Hut's sales were flat, and though Domino's (DMZ) reported domestic and international same store growth, it missed analyst expectations.

Papa John's shares were up nearly 1% after the report.

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