At Papa John's, Resignation Complicates Turnaround Effort

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John Schnatter, founder and chairman of the board for Papa John's, in a charity exhibition race in April.

John Schnatter, founder and chairman of the board for Papa John’s, in a charity exhibition race in April.


Photo:

Marc Sanchez/Zuma Press

Papa John’s International
Inc.


PZZA 11.67%

said late Wednesday that its independent directors have accepted the resignation of John Schnatter as board chairman, after he admitted to using a racial slur in a conference call.

It is the latest controversy for the pizza-chain founder, who stepped down as CEO late last year following an uproar over comments he made about the National Football League’s handling of its players’ national anthem protests.

Mr. Schnatter had publicly blamed the company’s recent sales slide on declining TV football viewership and the NFL’s handling of the protests. The chain was a major sponsor of the NFL until it ended the sponsorship in March.

Papa John’s business continues to suffer, with a 5.3% decline in North American same-store sales in the first quarter. The company’s total revenue in the first quarter fell 4.9% to $427 million.

The company is in the midst of efforts to turn around the brand, which includes introducing deals to compete with lower-cost rivals. The chain had long used the advertising slogan “Better Ingredients. Better Pizza.”

But competitors like

Domino’s Pizza
Inc.

and

Yum Brands
Inc.’s

Pizza Hut improved their recipes in recent years while a wave of fast-casual chains such as Pieology and Blaze Pizza have come along, leaving Papa John’s struggling to stand out in the crowd.

Mr. Schnatter also resigned from the University of Louisville board of trustees Wednesday following a Forbes report that he used the N-word and made other remarks deemed offensive in a May conference call.

Mr. Schnatter, a longtime university supporter who joined the board in January 2017, tendered his resignation, board Chairman J. David Grissom said. His term was slated to expire in 2022.

“After speaking with John, I’m confident that his comments, while inappropriate, don’t reflect his personal beliefs or values,” Mr. Grissom said in a statement. “No member of the board of trustees condones racism or insensitive language regardless of the setting.”

In a statement issued earlier on Wednesday, Mr. Schnatter apologized for his actions.

Mr. Schnatter founded Papa John’s in 1984 and turned it into a 3,400-unit chain in North America, with a further 1,600 outlets overseas. He stepped down as CEO once before, in 2005, after a multiyear sales slump and returned three years later after product quality began to slip, the company said. In 2010, he shared the CEO job with another executive, before assuming the sole CEO position again a year later.

Papa John’s said it will appoint a new chairman in the coming weeks.

Write to Julie Jargon at julie.jargon@wsj.com