• by Karlene Lukovitz  @KLmarketdaily, July 12, 2018

From a PR standpoint, you would think it couldn’t get much worse than having to publicly ask neo-Nazis not to buy your products.

That was the bizarre situation that Papa John's found itself in last November, after neo-Nazi site The Daily Stormer endorsed the pizza chain -- posting a picture of a swastika pizza and declaring Papa John's the official pizza brand of the alt right. The support came in reaction to founder John Schnatter's public contention that the National Football League -- which the pizza chain had sponsored since 2010 -- had damaged the chain's sales by failing to "nip in the bud" some players' "take the knee" protests during the national anthem.

That episode quickly resulted in Schnatter's resigning as CEO -- though he stayed on as chairman -- and in the dissolution of the chain's NFL sponsorship. (Pizza Hut immediately stepped in to fill the sponsorship void.) It also resulted in Papa John's issuing a statement that the company does not want hate groups to buy its pizzas. 

But Papa John’s’ sales have continued to decline -- same-stores sales were down 5.3% in first-quarter 2018 -- while Pizza Hut and Domino's have been on a roll. 

And Papa John's' image crisis actually got worse yesterday. Schatter resigned as chairman following the revelation, in a Forbes article, that he had used a racial slur in a May conference call with the marketing agency Laundry Service.

Ironically, the call was meant to be a role-playing exercise for Schnatter, “in an effort to prevent future public-relations snafus,” following his disastrous November 2017 comments.

But during the call, Forbes reported, "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 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, a source familiar with the matter said. After learning about the incident, Laundry Service owner Casey Wasserman moved to terminate the company’s contract with Papa John’s."

Schnatter subsequently apologized, stating: "News reports attributing the use of inappropriate and hurtful language to me during a media training session regarding race are true. Regardless of the context, I apologize. Simply stated, racism has no place in our society."

But the damage was done. 

Papa John's' announcement of his resignation said that the company would be announcing a new chairman in coming weeks.

The company's shares fell nearly 6% during trading on Wednesday, to a new 12-month low of $47.80 a share, erasing $96.2 million in market value--although it closed down 4.8%, at $48.33 a share, reported CNBC. Papa John's is down 13% year to date, while Domino's' shares are up 48.5%.