Papa John’s Preparing to Appoint Arby’s President Rob Lynch as its CEO

(Bloomberg) -- Struggling pizza maker Papa John’s International Inc. appointed Arby’s President Rob Lynch as chief executive officer, naming an outsider as it further breaks from its controversial founder John Schnatter.

Lynch, a fast-food industry veteran, will replace Steve Ritchie. It’s the biggest shakeup since activist shareholder Starboard Value set its sights on the pizza company. In a statement, Chairman Jeff Smith cited Lynch’s “proven record transforming organizations and realizing the growth potential of differentiated brands.”

Papa John’s, which operates about 5,300 locations globally, has been facing slowing sales, with revenue declining 12% in 2018. Schnatter, whose image had once been deeply ingrained with the company’s marketing, agreed earlier this year to resign from the board and dismiss a lawsuit related to his departure last year as chairman. Papa John’s woes grew last summer after the founder used a racial slur on a conference call, which he said was taken out of context.

Papa John’s shares rose as much as 8.7% Tuesday in New York, the biggest intraday gain in six months. The stock had already climbed 10% this year through Monday’s close, after declining the past two years.

“A new management team is usually a pretty good opportunity and you’re seeing it reflected in the stock price now,” Bloomberg Intelligence analyst Mike Halen said.

Starboard has invested $250 million in Papa John’s since February. Smith, Starboard’s CEO, became chairman of the pizza maker when it took the stake. The pizza maker’s shares fell 29% in 2018 and 34% in 2017.

The company was “run very poorly” under Ritchie, Schnatter said in a statement Tuesday after the change was announced. After Ritchie took over as CEO from Schnatter in 2018, the two feuded publicly, with Schnatter filing a lawsuit at one point last year saying Ritchie sought to oust him in order to hang on to his job.

While noting his reservations about the actions of the board and its ability to fix the business, Schnatter said Lynch has “proven to be an effective marketing leader in previous roles.”

Lynch joined Inspire Brands-owned Arby’s in 2013 as the roast-beef sandwich chain’s chief marketing officer. Before that, he worked at Procter & Gamble Co. and Yum! Brands Inc. as vice president of brand marketing for Taco Bell. He was appointed president of Arby’s in 2017 overseeing marketing, operations and development.

Pharrell’s Hat

At Arby’s, Lynch led the chain’s heavy meat-focused marketing and bold ad campaigns that poked fun at vegetarians. Arby’s has more than 3,300 restaurants across the world. In 2014, Arby’s struck social-media marketing gold when it started a back-and-forth with recording artist Pharrell Williams on Twitter over his hat, which resembles the restaurant chain’s logo.

“We luckily got our first big win just from being tuned in when we saw Pharrell wearing an ‘Arby’s hat’ at the Grammys! We quickly sent a tweet to Pharrell, and our conversation went viral,” Lynch said in an interview with Marketing Land.

Starboard is known for its turnaround of Olive Garden owner Darden Restaurants Inc. Smith’s proxy fight to replace Darden’s directors included a nearly 300-page Power Point presentation that called for several specific changes at the Italian-dining chain, including adding salt to the water when cooking pasta. Smith took over as chairman of Darden and the company embarked on an effort to improve its lagging performance that included spinning off its real-estate portfolio.

Ritchie, Schnatter’s one-time protege, took over the role of Papa John’s CEO in January 2018 when his boss stepped down. That came a few months after Schnatter went after the NFL for its handling of football players dropping to one knee in protest during the national anthem. Ritchie also worked as a delivery driver and store manager before becoming operating chief in 2014 and president in 2015.

Schnatter, long the largest shareholder, has been reducing his stake in Papa John’s, recently selling shares worth more than $30 million, according to a filing. Schnatter still controls almost 17% of the company’s shares, while Starboard holds about 15%.

Papa John’s, battered by steep competition from pizza competitors and the explosion of food delivery options, recently announced former NBA star Shaquille O’Neal as an investor and board member. Same-store sales fell 5.7% in the latest quarter in North America. To keep struggling franchisees from going out of business, the company has been offering them royalty reductions and funding for advertising.

In Tuesday’s statement, the company reiterated its full-year outlook of a decline of 1% to 4% for North America same-store sales. It also maintained its forecast for international comparable sales of flat to up 3%.

Separately Tuesday, Arby’s owner Inspire Brands named Jim Taylor president of the sandwich chain, replacing Lynch. Taylor had served as Arby’s chief marketing officer.

--With assistance from Jeff Sutherland and Craig Giammona.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Reed Stevenson, Lisa Wolfson

©2019 Bloomberg L.P.