Pizza maker Papa John’s announced third quarter results that went as expected, with the company reporting dismal performance. Shares of the company were jumping anyway as a smaller decline in same-store sales as well as the company perhaps being acquired gave traders optimism.
Shares of the stock rose almost 6% after the company’s earnings report.
BTIG analyst Peter Saleh remarked, “Papa John’s posted another eventful quarter, while challenges clearly remain, there were some encouraging signs as sales trends improved late in the quarter. The improvement and positive commentary on October supports a better sales outlook for [fourth quarter 2018] and into 2019, though we are not convinced the concept is out of the woods quite yet.”
Chris O’Cull, analyst at Stifel accredits the stock’s rebound this year after its founder was ousted because “investors expect the company will be acquired.”
“The company did not comment on whether it was pursuing a transaction or any strategic alternative,” he wrote in a note. “However, given the deteriorating fundamentals, investors need the company to find a buyer soon, in our opinion.”
Papa John’s has been trying to fix its reputation after ousting its CEO earlier this year over racial remarks, had spent millions during the quarter to fix its image.
For the quarter, the company saw adjusting earnings of 20 cents compared to the 22 cents that analysts had expected. Revenue at $364 million was below the $393.7 million expected. Same store sales saw a decline of 9.8% coming in better than the 10.7% decline that analysts waited for.
“During the quarter, we took important actions resulting in improved consumer sentiment and North America comp sales that were slightly ahead of expectations,” Steve Ritchie, CEO of Papa John’s, said in a statement. “While the operating environment remains challenging, these early indicators combined with our strong cash flow give us confidence in the consumer initiatives underway across the Company.”
Company-owned locations had same-store sales fall more 13.2 percent while analysts had expected just an 11.8 percent decline. Franchised locations posted same-store sales that were down 8.6 percent, which was better than the 10.5% drop analysts were waiting for.
The company also launched a new “Voices” ad campaign. which Ritchie told analysts the company had a “strong positive response” to.
“Employees and franchisees express their appreciation for shedding a light on the real values and people who make up our company. Customers also responded positively which shows that the strategy to move in the new more modern and inclusive marketing direction is the right one,” said the CEO.