Papa John’s Stock Pops as Chain Gets a New CEO From Arby’s - Barron's

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Papa John’s, meet the guy who’s got the meats.

Shares of Papa John’s International (ticker: PZZA) jumped Tuesday after the company named the president of privately owned Arby’s as its CEO—and reaffirmed its full-year outlook for earnings and global same-store sales. “Our business continues to perform on plan,” Chairman Jeff Smith said in a statement.

“I absolutely believe that Papa John’s best days are ahead,” Rob Lynch, who previously worked at Taco Bell, owned by Yum Brands (YUM), and Procter & Gamble (PG), said in a statement. The company’s shares were up 9.1% to $48.82.

Lynch replaces Steve Ritchie, who took over as CEO in January 2018 from founder John Schnatter, whose statements about NFL anthem protests attracted unwanted attention to the brand.

“Papa John’s is not an individual. Papa John’s is a pizza company,” read a July 2018 statement from Ritchie that came as Schnatter resigned as chairman following reports of his using a racial slur. Schnatter, Barron’s has reported, has lately been selling shares of the company.

In August, Papa John’s reported a second-quarter profit after several quarters in the red, though it missed the Street’s expectations. Revenue for the quarter fell 7% year over year.

Papa John’s shares have lately risen from recent lows below $40—in part because of a marketing pact with Shaquille O’Neal, who famously lamented the size of his breakfast in an old-school Pepsi spot—after falling like an inexpertly tossed ball of dough from prices a bit short of $90 in late 2016. (Shaq also joined the board.)

Tuesday’s news continued the rally. Smith said that Lynch’s reputation for transforming organizations made him attractive to the company.

BTIG analyst Peter Saleh upgraded Papa John’s on the news, setting a Buy rating and a $54 price target, about $1 below the average among analysts tracked by FactSet, on the shares.

“We expect the new leadership team to focus on menu innovation to address the weaker lunch daypart and eventually add a permanent value proposition, stronger operational focus and consistency across the system and improving franchisee relations,” Saleh wrote.

Stifel analyst Chris O’Cull, who has a Hold rating on the shares, expects more focus on the brand. “Arby’s needed to take calculated risks to change consumers’ perception of the brand and to break through the clutter of quick-service restaurant advertising, given it spent a fraction of the marketing dollars as [did] its competitors,” O’Cull wrote. “We envision Mr. Lynch will take [a] similar approach with Papa John’s.”

Email David Marino-Nachison at [email protected]. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.


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