The second-quarter earnings season has been anything but uneventful, and Papa John’s (NASDAQ:PZZA) proved that point well. A popular pizza franchise, the Papa John’s brand attracted controversy when founder John Schnatter expressed disapproval over the NFL’s handling of the national-anthem protests. Later, an incendiary remark resulted in Schnatter’s firing, but not an end to the ignominy.
If the company’s new leadership team hoped for Q2 as a springboard for future success, they were sorely disappointed. Against almost every key metric — profit, revenue, same-store sales – Papa John’s missed, and badly. Even more problematic, management delivered unquestionably poor guidance, admitting that revenues would be much worse than previously forecasted.
Prior to the Q2 report, consensus estimates pegged EPS at 54 cents. Actuals, which excluded the company’s refranchising efforts in China, came in at 49 cents. Net income fell to $11.7 million, which compared extremely unfavorably to the $24.1 million generated in the year-ago quarter.
Same-store sales, a critical metric for retailers and eateries, represented a bigger disappointment. Wall Street anticipated a 4.9% loss in this department. However, the actual loss was 6.1% in the quarter. Also, comparable-store sales throughout most of July fell 10.5% year-over-year.
According to CNBC, a Papa John’s franchisee who requested anonymity disclosed that his stores’ sales fell between 5% to 20%, depending on the specific location. Clearly, the fallout is only beginning for the once-beloved company that Schnatter founded.
A Critical Lesson to Be Learned
By now, you’ll know that the Papa John’s controversy stems from a racism charge. As a conservative, John Schnatter has fought these accusations before. That said, the charge took on increased momentum when Schnatter criticized NFL players kneeling during the national anthem to protest police brutality against black people.
Objectively, the racism angle didn’t hold much water at the time. Several people criticized the protests, not just corporate executives. Their criticisms centered on patriotism, respect, and decorum, and was not born out of racial animosity.
Even now, several weeks after news broke that Schnatter used the N-word during a conference call with a marketing firm, I don’t believe the Papa John’s founder is a racist. Again, from an objective point-of-view, I’d need much more evidence than one incredibly stupid but isolated incident.
But here’s the thing: Schnatter committed an unforced error. In the professional world, certain words exist that are no-nos. The N-word is one of them. Complain all you want about how “black people use that word all the time.”
It’s just a real simple formula. If you’re not black (and chances are, you’re not), don’t use that word. Even if you are black, don’t use that word. Why take chances?
This is the crazy thing about the Papa John’s fiasco that I’ll never get. Schnatter could have easily avoided any racism charge by simply using a different word, or better yet, a different statement. I’d feel uncomfortable dropping an F-bomb in a professional setting; why use the most incendiary word in the English language?
And now, a perfectly fine publicly-traded company may get incinerated. All for one person’s unnecessarily stupid mistake. Let that be an important lesson, folks: don’t say the N-word.
Seriously, just don’t.