How does one lose $70 million of personal fortune in one night?
Blow it in Vegas? Get your hotel suite broken into in Paris? News reports
suggest Papa John's CEO John Schnatter did it by putting his foot in his mouth
on a quarterly earnings call AND getting an unsolicited endorsement by white
supremacists and neo-Nazis.
Offering his thoughts on the National Football League's national anthem
debacle, Schnatter blamed the NFL's inaction for slumping sales. CNN Money
reported the remarks were criticized on social media by supporters of players'
protest during the national anthem. (Papa John's is the official pizza sponsor
of the National Football League.)
Forbes reported that Papa John's shares dropped 11% by mid-day Wednesday.
And CNN Money reported that their stock has fallen 30% so far this year:
National Public Radio reporting essentially avoided mention of the company's financial woes,
except to include Schnatter's quote about damage to Papa John's shareholders.
I don't have any beef against Schnatter or Papa John's. My wife and I
have ordered their pies for years. But I just sensed there's something out
of place here.
What's bigger news here? The notion that Schnatter interjected his personal
sentiments into an earnings call and got slammed for it, or the fact that he
remained as CEO for an entire year while his company lost 1/3 of it's value?
What other company would not consider leadership changes after three or maybe
only two quarters of a slump like that? How did he stay at the helm for a YEAR?
Of course, there are a great many things I likely don't understand here.
Particularly about the intricasies of corporate financials. There could have
been other factors not surfaced in the news coverage that explain the decrease
in stock value. The only thing I feel comfortable about saying probably wasn't
to blame was the NFL. Regardless of how you feel about player's protesting
social injustice, other publicly traded pizza chains did not suffer as
Papa John's did (and it's not like the company's NFL sponsorship allowed them
to "corner the market" on pizza delivery during NFL games. Plenty of other
pizza and other food delivery companies advertise during those games.
Former NFL quarterback Colin Kaepernick started his protests in the preseason
of 2016. A look at the 5-year chart of PZZA shows the company was trending upward
consistently until December, 2016, when their stock had reached $89.17 per share.
The stock has been in decline since that point.
I guess if I could see some pattern of decline that seemed to mirror the NFL
schedule, I'd be more inclined to believe Schnatter's asssertion; the NASDAQ
chart tells the story that something happened in mid-December 2016 that changed
the company's fortunes — a year in advance of Schnatter's earnings call blunder.
If pizza sales are tied so strongly to the NFL brand, it should follow that
other publicly traded pizza chains should also have had a disastrous year.
Over the same period, Domino's (NYSE: DPZ) was trading at about $150 per share
in September, 2016. That December, it was trading at $170 per share. Its price
reached $230 per share this July, and is currently still north of $190.
Here's a look at the two against the S&P Index:
Clearly, the NFL's and Papa John's problems are not Domino's problems.
According to Denver Post reporting from December 21:
Pizza Hut has also been working to up its delivery game and catch up with the
more tech-savvy Domino’s Pizza Inc., which makes it easy for customers to order
pizza pies through apps, social media posts or even text messages. Pizza Hut
said Thursday that sales rose 1 percent at its established locations worldwide
and were flat in the United States, an improvement from past quarters.
Domino’s, though, said sales rose 8.4 percent at established U.S. stores during
the third quarter. That’s down from the 13 percent growth it reported in the same
period the year before. “Nothing we reported in the quarter included commentary
about the NFL because we saw no reason to call it out,” a Domino’s spokeswoman
said Thursday.
For Papa John's to believe their fate is tied so closely to the NFL is to say
that their sales all come from NFL fans. The New York Times stated the
obvious in their coverage: "Pizza is big business during football games."
It's not just pizza, though:
Nation's Restaurant News reports Buffalo
Wild Wings has also taken a hit due to reduced NFL viewership.
According to a Snopes article, Papa John's Pizza was one of the NFL's biggest
advertisers as of November, 2017, when it started pulling some of the NFL branding
off of their advertising. Papa John’s Chief Operating Officer (COO) Steve Richie
explained the link between the company’s financial position and the NFL:
We’ve had a long-standing relationship with the NFL and it’s served us quite well,
just in terms of the overall brand awareness — we’re actually the number one
recognized partner with the NFL, two years running. So we get the benefit when
things are going well, but clearly we’re going to get the downside implications
when things aren’t going that well.
The
Nation's Restaurant News article also mentioned that Papa John's
has entered into an agreement with Major League Baseball.
Schnatter was the subject of a meme in circulation on social media in late
October/early November. The meme offered a rather one-sided comparison of
Schnatter to Mike Illich, founder of Little Caesar's. While the meme makes
some rather unfair statements (according to Snopes, a bullet regarding being
found guilty of wage theft and not paying overtime actually involved a
franchisee, not the Schnatter or the corporation), the Snopes article includes
a number of quotes from Schnatter explaining the proper context for a number
of assertions. (The link to Snopes includes the meme.)
Links:
CNN Money
Denver Post
Forbes
Nation's Restaurant News
NPR
Snopes.com (Meme)
Snopes.com (NFL advertising)
The New York Times
Wikipedia