Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Papa John's Delivers a Double Order of Good News

By Chris Hill - Nov 11, 2019 at 12:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It’s been a while since its same-store sales numbers did this.

If I say "Papa John's" ( PZZA -1.48% ) and you think first of Shaquille O'Neal, or how you could really go for a slice, or, frankly, anything other than John Schnatter and the controversies and anger he stirred up, then the pizza company's new management must be doing something right. And apparently, management succeeded, because the latest quarterly report just showed same-store sales were up 1%, the first time in two years they didn't fall.

In this segment of the Nov. 6 MarketFoolery podcast, host Chris Hill and Motley Fool senior analyst Abi Malin consider the path ahead for the still-weakened pizza delivery chain, the news that recently appointed CEO Robert Lynch is cleaning house in the C-suite, and consider whether the shares today represent a value that's worth the risk.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Nov. 6, 2019.

Chris Hill: Shares of Papa John's up more than 5% because same-store sales in the third quarter were up 1%. That's a tiny amount, but that's the first time in two years they've had positive comps. So, yes, it's a low bar, but Papa John's cleared it.

Abi Malin: Expectations were that they were supposed to be down about 0.6%. So, exceeding expectations, and actually reversing a trend, which is always going to be very positive news for them.

Hill: So, you've got Rob Lynch, who's been the CEO since August. He basically just got there. I'm assuming this is part of why the stock is moving up today -- Rob Lynch basically announced a shake-up of the management team. You've got a longtime CFO who's going to be leaving in the next couple of months. Chief marketing officer, chief operating officer, they're all leaving. And Lynch is basically bringing in his own team, and is saying, "Papa John's needs to focus on quality." I don't know. This seems interesting to me in the way that 10 years ago, Patrick Doyle, when he became CEO of Domino's Pizza came out and said, "Yeah, we have to make our pizza better." It seems like it's potentially that type of moment for Papa John's.

Malin: It is. I mean, it's interesting. It's really been a turbulent story ever since their former founder and former CEO, John Schnatter drove the brand's image really into the ground with those super controversial comments. Then they appointed Steve Ritchie, who'd held the position for about a year and a half. The interesting thing about Ritchie was that he had actually worked his way up through all of the ranks of Papa John's, and really had been there since the beginning, was an insider. He actually owned 27 franchise stores within that Midwest region. Now they've brought in this outsider, Rob Lynch, who was previously the president of Arby's, as well as various leadership positions at Procter & Gamble and Taco Bell. I think they're recognizing that a change needs to be made here. And I think it's positive. Something's not going well in this business, for sure. I still don't know that this is an attractive investment. Even within delivery, fast food pizza, I don't necessarily think this is the company I would buy.

Hill: See, that's what I was going to ask you about. Year to date, shares of Papa John's are up about 50%. Maybe it's trading at a rich valuation. I don't know, though. It's still less than a $2 billion company. I'd be remiss if I didn't mention, Shaquille O'Neal, on the board of directors. I don't know! I'll just put it this way -- it wouldn't surprise me if three years from now, we looked back and said, "Oh, yeah, when Lynch came in the door, cleaned out the management team, replaced them and said, 'We have to focus on quality,' that was the time to buy the stock."

Malin: Yeah, I think that's a fair assessment. My thing is, I would never want to pay a premium for what's essentially a turnaround story. I think that's what we're seeing with the stock right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Papa John's International, Inc. Stock Quote
Papa John's International, Inc.
PZZA
$120.12 (-1.48%) $-1.80

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.