Papa John's Sales Slump Not as Sharp as Wall Street Had Feared

(Bloomberg) -- Papa John's International Inc. rose in late trading after reporting a drop in North American franchisees' same-store sales that wasn't quite as bad as analysts had been expecting. Executives said the chain is working to improve delivery and lower owners' food and labor costs.

• Still, third-quarter revenue missed estimates and the pizza chain lowered the top end of its earnings outlook as it battles through scandal and steep competition.

Key Insights

• Disputes related to founder John Schnatter have sapped momentum this year. The chain has been fighting back with more ads and discounts, and executives said it will test more value offers in the fourth quarter.
• The company said it's increasing its financial commitment to franchisees who are suffering sales losses, giving them more marketing funding and royalty reductions. It's a move to keep restaurants from having to close up shop, but it's expensive. Special charges are expected to increase this quarter to as much as $35 million, compared with $24.8 million last quarter.
• Papa John's still faces pressure to turn its performance around. Last month, activist hedge fund Legion Partners Asset Management LLC announced a stake. There's been speculation lately that private equity firms and others are vying for the beleaguered chain.

Market Reaction

• The stock rose as much as 5.7 percent to $56.50 a share as of 5:30 p.m. in New York. As of Tuesday's close, Papa John's had lost 4.7 percent this year.
• For more on the results, click here.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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