Papa John’s defends Shaq as its founder sells more shares

The chain’s sales slowed in the first quarter but remained better than other restaurants as consumers opt for more delivery.
Photograph courtesy of Papa John's

Papa John’s stepped up to defend its most famous director this week, even as its most famous former director continued his steady exit from the brand.

The Louisville, Ky.-based pizza chain Monday defended Shaquille O’Neal’s attendance at company board meetings after a proxy advisory firm recommended shareholders vote against reelection.

Institutional Shareholder Services (ISS) questioned O’Neal’s record of attending board meetings and said that he missed too many of them to warrant reelection. Proxy advisory firms make recommendations for board elections and other shareholder votes, and many institutional shareholders—who control vast numbers of shares and therefore votes—abide by those recommendations.

Papa John’s, however, said the early missed meetings were due to conflicts in place before O’Neal was named director. It defended his contributions to the company, noting that he has attended every meeting so far this year and that neither he nor the company “anticipates attendance issues in 2020.”

“Mr. O’Neal has made important contributions to Papa John’s since joining the board in March 2019, when he also became a brand ambassador, as well as a franchisee,” Board Chairman Jeff Smith said in a letter to stockholders Monday.

Smith's statement led to an updated recommendation from ISS, which now recommends that shareholders vote for O'Neal's nomination.

O’Neal was named to the board a year ago as part of a major effort to improve Papa John’s image, which had been tarnished the previous year after company founder and former Chairman and CEO John Schnatter admitted to using a racial slur during a conference call.

O’Neal, a former professional basketball player-turned-ad pitchman and on-air personality, has appeared in company advertisements, stepping into a role that Schnatter once played as the chain’s primary spokesman.

“Mr. O’Neal has added a unique and diverse perspective to the board, and he is expected to continue to help Papa John’s improve its culture and engagement with its customers and communities,” Smith said.

Meanwhile, Schnatter himself continued to sell company shares as his association with the company continues to shrink.

At one point, Schnatter owned 31% of Papa John’s shares. He was its chairman and CEO as well as its primary spokesman. He has gradually shed all of those titles and for much of the past year has been selling off his stock holdings as well.

According to a federal securities filing Monday, Schantter sold another 350,000 shares. He now owns fewer than 1.3 million shares of Papa John’s stock, or less than 4% of the company. That’s a key milestone: Bringing his total under 5% means Schnatter is no longer required to file statements of ownership with the Securities and Exchange Commission.

The controversy over Schnatter’s comments sent the company’s sales plunging in 2018 and 2019. Papa John’s recovery from those declines continued in the first quarter, the company said Tuesday, but the coronavirus crisis has eroded that improvement.

Same-store sales rose 5.3% in the first quarter ended March 29 in North America, according to preliminary sales results released Tuesday. Yet that masks a significant slowdown. Same-store sales rose 7.6% in January, then slowed to 5.4% and then 3.6%, according to the company. 

International same-store sales rose 2.3% in the period and experienced a similar month-to-month slowdown. The numbers reflect a slowdown similar to the one reported Monday by rival Domino's Pizza. 

Such numbers are far better than other restaurants, which have seen significant sales declines as consumers stay home. But pizza chains face mounting competition for delivery customers and are also hurt by the lack of televised sports and the closure of many college campuses, among other things.

And Papa John’s has a long way to go before it is fully recovered: Same-store sales are still 7% lower than where they were in the first quarter of 2017, before the controversy and the health crisis began.

“Although March sales in North America were negatively impacted by the cancellation of large gatherings, including major sporting events, our international and domestic businesses have performed well, as customers and communities rely on us and others in the food delivery industry,” CEO Rob Lynch said in a statement.

The company said it has access to $350 million in credit, “should we need it,” but withdrew its annual outlook over “uncertainties related to the COVID-19 pandemic.”

UPDATE: This story has been updated to note that ISS has since changed its recommendation.

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