Papa John's Tumbles After Report Of Founder's Racist Remarks

Shares of Papa John's tumbled on Wednesday to $47.80, the lowest price since February 2016, after after outspoken chairman and founder John Schnatter came under fire following a report from Forbes that he used the N-word and graphic descriptions of violence against minorities on a conference call in May designed by marketing agency Laundry Service as a role-playing exercise for Schnatter in an effort to prevent future public-relations snafus."

Following the conference call incident, Laundry Service cut ties with Papa John's - telling staff in a May 31 letter that it was ending its work with an unnamed client thanks to "the regrettable recent events that several employees of Laundry Service witnessed during interactions with a client’s executive," according to a copy of the letter obtained by Bloomberg.

Papa John chairman and founder John Schnatter

On the May call, Schnatter was asked how he would distance himself from racist groups online. He responded by downplaying the significance of his NFL statement. “Colonel Sanders called blacks n-----s,” Schnatter allegedly said, before complaining that Sanders never faced public backlash.

Schnatter also reflected on his early life in Indiana, where, he said, people used to drag African-Americans from trucks until they died. He apparently intended for the remarks to convey his antipathy to racism, but multiple individuals on the call found them to be offensive, the source said. After learning about the incident, Laundry Service owner Casey Wasserman moved to terminate the company’s contract with Papa John’s. -Forbes

Shares of the pizza chain have tumbled 25% since Schnatter waded into the debate over national anthem protests and made several inflammatory comments against the NFL; the slide continued today with PZZA dropping as much as 5.9%, sliding to the lowest level since February 2016.

Papa John's did not dispute Forbes' report on Wednesday, however they noted that "Papa John’s condemns racism and any insensitive language, no matter the situation or setting. ... We take great pride in the diversity of the Papa John’s family, though diversity and inclusion is an area we will continue to strive to do better."

As Bloomberg adds, the company's new CEO, Steve Ritchie, who replaced Schnatter in January, sent an internal memo to team members, franchisees and operators on Wednesday addressing the event, though without mentioning Schnatter by name.

“You may have read the media reports today tied to our company culture. We want to make it clear to all of you that racism has no place at Papa John’s,” according to the memo obtained by Bloomberg News.

“The past six months we’ve had to take a hard look in the mirror and acknowledge that we’ve lost a bit of focus on the core values that this brand was built on and that delivered success for so many years,” Ritchie said. “We’ve got to own up and take the hit for our missteps and refocus on the constant pursuit of better that is the DNA of our brand.” -Bloomberg

The 56-year-old Schnatter founded Papa John's in Jeffersonville, Indiana after he installed a pizza oven at his father's tavern. The business eventually grew to over 5,000 locations with annual revenues north of $1.7 billion. 

Following the NFL anthem controversy, Schnatter stepped down as CEO when during the company's third-quarter conference call he blamed the league for slow sales. The company later apologized for the “divisive” comments.