Papa John's Dismal Sales Put Hundreds of Stores in Jeopardy

Papa John's may be in danger of shuttering dozens of stores if sales do not improve towards the end of the year, as its sales have declined sharply in recent months.

CNBC reports that same-store sales dropped 10.5 percent in July, with that number continuing in August. In the third quarter, analyst Chris O'Cull estimates that sales are down 10 to 11 percent.

If that trend continues, O'Cull is predicting that 150 to 200 Papa John's franchises in noncore markets in the Northeast and West Coast could be forced to shutter. In addition to impacting the franchises themselves, the potential closings could also impact Papa John's bottom line, as the chain's in-house commissary sales, or what it charges its franchisees for ingredients, represented around 35 percent of Papa John's profits during the first half of the year.

"We are surprised the company's aggressive promotions the past several weeks have not curtailed the sales declines and we believe if the trend persists that it could lead to accelerating store closures during the next six months," O'Cull wrote in a research note Thursday.

If that number of stores close, Papa John's may be forced to raise its commissary prices, which could in turn cause other franchises to close if they are unable to pay for their ingredients.

"We concede new branding, marketing and value efforts, which are expected to debut in the [fourth quarter], could help stabilize the fundamentals, thus limiting the need for some franchisees to close units," O'Cull added. "There is also the possibility management could extend franchisee financial assistance measures to next year."

The declining sales come after the company's founder John Schnatter used a racial slur on a conference call in May, which he confirmed in a statement to Forbes in June.

"News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true," the statment read. "Regardless of the context, I apologize. Simply stated, racism has no place in our society."

He almost immediately resigned as chairman of the company. Papa John's soon lessened Schnatter's presence in advertisements.

Schnatter had previously stepped down as CEO in November after he became involved in the discussion regarding the national anthem protests in the NFL, with Schnatter blaming the league for Papa John's poor sales. Papa John's previously had a sponsorship deal that ended after Schnatter's comments.

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Pizza Hut was later tapped as the official pizza sponsor of the NFL.

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