Shares of Papa John's International, Inc. (PZZA - Free Report) plummeted on Nov 27, closing the day down at 10.2%. Per a report by The Wall Street Journal, the dip occurred after Trian Fund Management LP — a private equity fund — discarded an offer to buy Papa John’s. It is to be noted that Trian, which also has a 13% stake in Wendy’s (WEN - Free Report) , was contemplating a bid for Papa John’s in the past.
Rumors also suggest that apart from Trian, Papa John’s had no other potential buyer, who would take up the entire pizza chain. The other buyout interests were in the form of acquiring bits and pieces of Papa John’s.
Was Papa John’s Desperate for a Sell-Out?
Apart from witnessing a consistent decline in revenue trends, Papa John’s has been under the spotlight of negative publicity after its ex-CEO, John Schnatter has been publicly denounced for making a racist comment. Ever since, Papa John’s has been relentlessly trying to distance itself from Schnatter, and craft various ways to regain its brand image and sales trend.
To this end, the company was exploring various opportunities to sell out completely. In August, Papa John’s is also said to have sought assistance from Bank of America Corporation (BAC - Free Report) on potential buyout interests.
Papa John’s also undertook an assistance program for its U.S. and Canada franchisees. Under the assistance program, it planned on reducing royalties, food-service pricing and online fees throughout the current year.Further, the company has been arranging funds for its franchises to implement marketing and reimaging initiatives.
What is Plaguing Papa John’s?
Dismal comps performance over the past couple of quarters has been the most major concern for Papa John’s. In the third quarter, domestic company-owned restaurant comps declined 13.2% versus 1.7% comps growth in the year-ago period. Comps at North America franchised restaurants fell 8.6% against comps growth of 0.7% in the quarter under review. Comps at system-wide North American franchised restaurants decreased 9.8% in contrast to 1% comps growth in the year-earlier quarter. Comps at system-wide international restaurants were down 3.3% as opposed to comps growth of 5.3% in the prior-year quarter.
In 2018, North America comps are expected to decline 6.5-8.5% compared with the earlier mentioned 7-10% decrease. International comps are still anticipated between a negative 2% to up 1%.
Apart from bleak top-line performance, the company’s earnings have also declined in the past few quarters due to weak operating results. Stiff competition from pizza chains like Domino’s (DPZ - Free Report) is also a major concern.
Notably, a look at Papa John’s price trend revealed that the stock has had an unimpressive run on the bourses in the past year. Shares of the Zacks Rank #4 (Sell) have lost 9.7% against the industry’s collective growth of 9.3% during the same time frame. You can see the complete list of today’s Zacks #1 Rank(Strong Buy) stocks here.
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