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Papa John’s closes 51 locations

The company’s North America same-store sales declined nearly 10% in the third quarter.
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Papa John’s closed a net of 51 locations in the third quarter, the company said Tuesday, as same-store sales continued to plunge amid an ongoing controversy involving its founder.

The company said that same-store sales declined 9.8% in North America in the quarter ended Sept. 30.

Sales also fell outside of the U.S., where international same-store sales declined 3.3%.

The domestic results were “slightly” ahead of the Louisville, Ky.-based pizza chain’s expectations.

Speaking on the company’s third-quarter earnings call Tuesday afternoon, executives said that same-store sales improved in September from the decline of 10.5% in July and into August.

Steve Ritchie, Papa John’s CEO, said that the comparable store sale and traffic improved after the chain launched its “Voices of Papa John’s” campaign in September. “The strategy to move into a more modern and inclusive marketing direction was a good one,” Ritchie said.

The better-than-feared performance sent the company’s shares 3% higher in after-hours trading on Tuesday.

Analysts and investors were paying close attention to Papa John’s results. The company’s sales have struggled for the past year, since founder John Schnatter appeared to blame NFL player protests for the chain’s weakening same-store sales. They worsened further in July, after Schnatter acknowledged using a racial slur during a conference call and resigned.

The sales results “reflect the brand challenges exacerbated by the negative impact of media coverage” beginning July 11,” Ritchie said, vowing that the events are “not going to define the future of Papa John’s.”

Papa John’s reported a net loss of $13 million, or 41 cents a share, driven mostly by nearly $25 million in “special charges.”

Those charges include $3.6 million in reimaging costs at nearly all of its domestic locations and $9.9 million in financial assistance to operators. The company also said it spent $11.3 million on various legal and other costs associated with an audit of the company's policies and procedures following the departure of founder John Schnatter as chairman and primary spokesman in July.

Papa John’s has 3,356 restaurants in North America, down from 3,407 at the beginning of the quarter following 68 closures and 17 openings. Papa John’s also sold 31 restaurants to franchisees in the period.

Year to date, Papa John’s has closed 151 locations and opened 66, for a net unit count reduction of 85.

Including international locations, Papa John’s operates 5,247 locations worldwide.

Including international locations, Papa John’s operates 5,247 locations worldwide.

The company has been bracing for closures for months, providing royalty breaks and other incentives to operators suddenly struggling following a year of weak sales. Some analysts believe the company faces more closures this year in some of the chain’s weaker markets.

UPDATE: This story has been updated to add details and quotes from the earnings call.

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