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Papa John’s Idea Proposal (PZZA)

Papa John’s Idea Proposal (PZZA)
 

Will Papa John’s turnaround initiatives reverse declining sales?

Report Available: July 31, 2019

 

Blueshift’s initial research found PZZA trying desperately to recover from a year and a half of controversy and declining sales. PZZA’s sales were already in decline when its founder, John Schnatter, added to the problems with damaging comments and behavior. Schnatter and PZZA have parted ways and the company is adding new leadership to its board and C-Suite in an effort to turn its fortunes around.

 

Observations

  1. PZZA and its 5,300-plus stores in over 44 countries were the biggest fast food losers in 2018. With sales in decline, PZZA’s founder and CEO criticized the NFL’s leadership in the wake of national anthem protests, made a racial slur on a conference call, saw his brand adopted by neo-Nazis, and publicly fought with his board of directors. Since then, the CEO has left the company, new leaders are being added and recovery efforts are underway to win back customers and reverse the declining sales trend.
  2. PZZA’s turnaround plan calls for $80 million of financial assistance for struggling domestic franchisees (on top of the $15.4 million spent last year), investments in technology in an effort to catch up to competitors, and a new marketing effort lead by The King of Endorsements, NBA Hall of Famer Shaquille O’Neal. The deal with O’Neal is worth about $8.5 million over three years; Shaq will also become a part owner in nine store locations in Atlanta.
  3. A Bloomberg Opinion columnist thinks investors should give PZZA’s recovery plan a chance. Her optimism is founded in February’s $200 million investment in PZZA by Starboard Value LP, the company that engineered DRI’s Olive Garden turnaround. She is also encouraged by PZZA’s recent addition of new menu items, new C-Suite personnel with fast food experience, and its partnership with DoorDash.
  4. A Feb. 21 Louisville Business Journal article said PZZA’s recovery will take longer than expected because of competitive pressure. PZZA’s January promotional performance fell short of others in the industry — specifically, DPZ’s $5.99 Mix & Match deal, YUM’s Pizza Hut’s $5 Lineup, and Little Caesar’s $5 Hot-N-Ready. “As evidenced by the January promotional performance, [Papa John’s] is struggling to increase transactions without hurting franchisees’ already low profitability.”
  5. PZZA saw Q1 sales decline9% year to year in North America which was better than the 7.3% expected slide. Earnings also beat expectations, however they were down 40.4% compared to Q1 2018. While PZZA’s overall sales decline did slow, weak sales in domestic company-owned restaurants, a decline in North America commissary sales, and soft international sales led to a total 11.5% year to year revenue decline. PZZA remains optimistic about its turnaround effort and has reiterated full year guidance which predicts a 1% to 5% decline in North American store comps.

 

Will PZZA’s turnaround efforts reverse the trend of declining sales? How extensive is the damage from PZZA’s former CEO? How much pain can PZZA franchise owners endure before they have to close stores? Will underwater stores recover? How are PZZA franchisees reacting to the recovery efforts? What does competition in the pizza market look like? Is DPZ’s practice of saturating a market with new stores taking hold? How is technology impacting pizza sales for PZZA and competitors? How is DoorDash affecting PZZA sales and profitability? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: PZZA franchisees, PZZA store personnel, Supply chain, Competitors, and Industry specialists.  

 

 

Companies: Papa John’s International Inc. (PZZA), Domino’s Pizza Inc. (DPZ), YUM! Brands Inc. (YUM)

 

Research Begins: July 15, 2019

 

 

To see other ideas Blueshift Research is currently working on, please click here.

 

 

Blueshift Research’s sister company, Intro-act, is launching its Intro-act Scorecard, the C-suite’s standard, ongoing measure of corporate investor engagement.

 

The Scorecard optimizes the ROI on corporate access by measuring: Concentration, Directionality, Breadth, Impact, Depth, and Duration