Papa John's sales drop amid founder controversy

Papa John's wants to move on from its famous founder, but John Schnatter says he isn't going away.

The fight underscores the challenges facing the pizza chain, which has slashed its sales outlook for the year after reporting a third straight quarter of sales declines in North America. Rival Domino's continues to post gains.

Even before the Forbes reported on July 11 that founder John Schnatter used a racial slur, a key sales figure had been down around 6 percent. Then for July, the drop steepened to 10.5 percent at established North American locations, the company said Tuesday.

Now, Papa John's and the man who founded it are fighting over where to lay blame for the troubles, and what's needed to win back customers.

Papa John's says it can't predict for how long or how much its sales will be hurt by bad publicity. But the company is envisioning a future and new marketing campaign later this year without Schnatter, whose image until just a few weeks ago was on a logo all over its website.

During a call with analysts, CEO Steve Ritchie said the company needed to "move on" and that the chain shouldn't be dependent on a single person.

"Sometimes the greatest opportunities happen in the most inopportune times," Ritchie said.

Schnatter, who remains Papa John's biggest shareholder and a board member, has a different take. He said in a statement that he is "not going away."

"The company is trying to deflect attention from the source of the problem — management's ongoing failures with regard to financial performance — and blame me for its problems," he said.

In an interview with The Associated Press last week, Schnatter said the chain's troubles reflect its move away from marketing its "roots," including his disappearance from TV and radio ads starting late last year.

The competing arguments come after Schnatter apologized and stepped down as chairman for using the N-word during a media training call last month. Schnatter said the comment was taken out of context, and has since criticized Papa John's for its handling of the matter.

The chain's troubles reach farther back.

Late last year, Schnatter had already stepped down as CEO after blaming disappointing sales on the NFL's handling of player protests during the national anthem. Schnatter says the comment was mistakenly taken as criticism of players, even though it was directed at the league's leadership. That's around when he started disappearing from TV and radio ads, though his image remained on pizza boxes and elsewhere until last month.

Showing just how difficult it will be to divorce its image from its founder's, Papa John's said it may not be until next year that the process of collecting all materials with Schnatter's image from its stores would be complete.

For the year, Papa John's now expects sales to fall 7 percent to 10 percent at established North American locations. Before the controversy, the company had forecast the figure to be flat to down 3 percent.

Shares in Papa John's dropped more than 10 percent to $36.77 in extended trading.

Papa John's International Inc., based in Louisville, Kentucky, has more than 5,200 locations.

___

Follow Candice Choi at www.twitter.com/candicechoi