Can Starboard Value Rescue Papa John’s From A Year of Decline?

Pizza chain Papa John’s has had a rough couple of years and has been working on a plan to turn itself around.  With new board members—and a big investment check—they may be starting on the right path. 

On Monday, the company announced hedge fund Starboard Value has opted to invest $200 million into the struggling brand.  In addition, Starboard—the former Olive Garden investor—could also add $50 million more by the end of March.  With that, though, Papa John’s will name Starboard Value CEO Jeffrey Smith as the new chairman with Anthony Sanfilippo—the former CEO of gaming company Pinnacle Entertainment—also coming on board.  

It has been a year since Papa John’s first hit decline. This came, of course, after the company’s founder—and then CEO—John Schnatter, resigned from the board when news broke that he had once used a racial slur in a company conference call. You may also recall that Schnatter blamed the chain’s slowing growth—against the advice of his board of directors—on the National Football League’s handling of the pressing player protests of the national anthem at the time (and, initially, Colin Kaepernick’s quiet kneeling protest).

Obviously, the company has tried to put distance between themselves and their founder, mostly through a new marketing campaign as well as internal audit on the company’s diversity and inclusion practices. Schnatter retaliated, fiercely declaring that present CEO Steve Ritchie is wrong for the position and that Ritchie had actually contributed to this toxic culture. 

And this reputation is easily reflected in the company’s profits. Sales have fallen steadily since then, with comparable sales dropping nearly 10 percent in the quarter ending September. Revenue across North American stores that have been open at least a year fell more than 8 percent last quarter, alone, and more than 10 percent in January. 

In a statement, Ritchie said, “These results are disappointing to all of us, [but we] are confident in the great potential for the brand, particularly with the support of our new partners.”  He makes sure to ad that the hedge fund brings particular financial resources and industry expertise that will lead to new and exciting menu items and more creative advertising strategies. 

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