Papa John's cut its outlook and suspended its quarterly dividend as its turnaround drags on longer than expected and a challenging consumer environment pressures results.
The pizza chain also on Thursday said it wasn't interested in selling the company, after spending the past 18 months exploring strategic alternatives. Chief Executive Todd Penegor said Papa John's has opted to stick with its turnaround plan, where it is trying to present itself as having a better value proposition and to attract new customers.
"We believe it is in the best interest of the company and all of our shareholders to focus 100% of our attention on Papa John's transformation," Penegor said on a call with analysts.
Papa John's turnaround has to contend with a softer consumer backdrop, as well as a flood of deals from fast-food rivals, both of which are pressuring the business. The company reported an 8.3% decrease in North American same-store sales during its second quarter. The decline was partially offset by International same-store sales, which grew 1.5%.
Total revenues and profit both fell, and the company said it doesn't expect sales trends to improve much over the course of the year. Shares tumbled 14%, to $25.60, in recent trading and have lost over a third of their value year to date.
The pizza category has particularly struggled to increase business in recent years. Once the second-most common U.S. restaurant type, pizzerias are now outnumbered by coffee shops and Mexican food eateries, according to industry data. Sales growth at pizza restaurants has lagged behind the broader fast-food market for years.
In an effort to improve sales trends, Papa John's will lean on two core pillars: strengthening the chain's value perception and attracting new customers.
The company said it aims to offer compelling price points as well as more targeted, personalized deals to help assuage consumers' economic concerns. At the same time, it will lean on stepped up marketing efforts and new product launches to attract new customers to the brand.
"While our financial performance isn't where we'd like it to be, we have a clear understanding of how to improve our results and gain market share," Penegor said.
The efforts require investment, though, and Papa John's said it will suspend its quarterly dividend to put more money into the business.
Looking ahead, Papa John's now expects global, system-wide restaurant sales to fall between 2% and 4% this year, compared with a prior forecast for sales to be flat or down in the low-single-digits.
The new outlook assumes North American comparable sales will now decline 6% to 8% this year, compared with prior guidance of down 2% to 4%. The company also tempered its international comparable sales outlook to up 1% to 3%, from up 2% to 4%.
For its three months ended June 28, Papa John's posted net income of $8.7 million, or 24 cents a share, down from $9.67 million, or 28 cents a share, in last year's comparable quarter. Adjusted earnings of 46 cents a share edged out analyst views for 45 cents a share, according to FactSet.
Total revenues fell 8.8% to $482.4 million, roughly in line with Wall Street estimates.
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