Coverage: Papa John’s same-store sales dropped 10% in the third quarter

As it unveiled its third-quarter results late Tuesday afternoon, Papa John’s told analysts that its battle to lure customers back to its stores is still a work in progress, and the performance reflected that.

Grace Schneider of the Louisville Courier Journal had the news:

North American same-store sales dropped — again — by nearly 10 percent, leading to a consolidated loss before income taxes of $20 million for the quarter, compared with income before income taxes of $30.9 million in the third quarter of 2017. That represents a decrease in pre-tax income of $50.9 million.

Papa John’s blamed the loss of 5.5 percent of revenues for the quarter on $24.8 million in special charges related to battling the crisis that engulfed the company starting last summer.

But “we’re seeing early indications” that the turnaround efforts are working to improve consumer sentiment, Steve Ritchie, president and chief executive, told analysts during a conference call.

Papa John’s reported cash flow from operations of $98.8 million and free cash flow of $68.2 million for the first nine months of 2018.

Sarah Whitten of CNBC.com reported that the results missed Wall Street expectations:

Papa John’s has been thrown into turmoil since its public feud with former CEO and Chairman John Schnatter broke in July. Sales have tanked, traffic is down and franchisees have been divided, some siding with Schnatter, others with the company and the rest caught between the two.

The company lost $13 million, or 41 cents a share, during the third quarter, compared with a profit of $21.8 million, or 60 cents a share, during the same period last year, the company said after the market closed Tuesday. After adjusting for certain items, the company earned 20 cents a share while analysts expected 22 cents a share, according to average estimates compiled by Refinitiv.

The company excluded $24.8 million in special charges from its adjusted earnings that included $3.6 million in costs to remove Schnatter’s image from its marketing materials and $9.9 million in financial assistance to its franchise owners.

The company generated $364 million in revenue, down 15.7 percent from $431.7 million during the same time last year – missing analysts’ estimates of $393.7 million.

Danielle Wiener-Bronner of CNN Business reported that a new ad campaign has begun to show results:

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.