Papa John’s International Inc. (NASDAQ:PZZA) shares plunged almost 10% after the company indicated that it was shuttering temporarily around 50 franchised locations in china on concerns of the coronavirus outbreak.
Papa John’s grappling with declining sales
The company’s CEO Rob Lynch indicated that year-to-date sales have been affected countrywide. He added that YoY sales in China have dropped from mid to low double digits. Although the company reported a 3.5% growth in the same-stores sales for a second consecutive quarter, full-year same-store sales nonetheless decline by 2.2% in the region. Last year the company closed 128 stores in North America as franchisees grappled with declining sales.
This is a result of the company struggling with growing competition in the fast-food space where there is food nowadays easily available for delivery beyond pizza.
Lynch indicated that almost 10% of the company’s international footprint is in China, and thus they are doing all they can to support franchisees and teams in China. He, however, expressed concerns regarding the selloff of the company’s shares and stated that the business is in great shape and on turnaround mode.
Coronavirus affecting sales in china
The company has been gathering real-time information regarding the spread of COVID-19 from its team on the ground. Coronavirus is the latest challenge for the company that has been working on a turnaround following a scandal involving its former CEO and founder John Schnatter. Schnatter allegedly used the N-word during a call, which damaged the company’s reputation and hurt sales.
As part of its turnaround, the company has enhanced the speed of its services and partnered with companies such as DoorDash Inc. for faster delivery of pizza to diners. However, Papa John’s is also facing high costs of hiring and retaining employees more so delivery drivers.
The CEO indicated that the company is currently doing things differently than before. He attributed most of the company’s Q4 growth to the promotion of a new menu item called Garlic Parmesan Crust. This is the first time the pizza chain has changed its signature dough.
