On July 23, Papa John’s (PZZA) hit a new 52-week low of $46.06 before closing the day at $46.56. The stock fell 9.8% from its previous day’s closing price.
The decline was due to the announcement from Papa John’s board that it would adopt a limited time shareholder rights plan, also called a “poison pill,” to protect the interests of the company and its shareholders. The shareholder rights plan would prevent John Schnatter, its founder, from taking a more significant stake in the company. On July 11, Schnatter stepped down as the chair of the company’s board after apologizing for the usage of a racist slur during a media training call.
Due to the ongoing battle between the board and Schnatter, Stifel analyst Chris O’Cull downgraded the stock from “hold” to “sell” on the same day. As reported by CNBC, O’Cull wrote, “The outlook for Papa John’s is growing dimmer with recent media reports citing a fraternal corporate culture that is reinforcing consumer perception that Papa John’s is not a trusted brand.” He further added that the checks Stifel conducted indicated a mid-teen decline in same-store sales growth (or SSSG) in the last few days. The decline has prompted him to lower the SSSG estimates to a decline of 12% in the third quarter and a decline of 10% in the fourth quarter.
Papa John’s, which lost 34.4% of its share value in 2017, is down 17% year-to-date. In comparison, peers Domino’s Pizza (DPZ) and Yum! Brands (YUM) have returned 43.8% and -3.3%, respectively, since the beginning of 2018. The S&P 500 Index (SPY) and the Consumer Discretionary Select Sector SPDR ETF (XLY) have returned 5.4% and 13.5%, respectively.