Papa John’s second record sales month sends stocks soaring


Quarantined Americans tired of cooking aren’t the only ones getting fat off Papa John’s.

Starboard Value, the $6 billion activist hedge fund that swooped in last year to push out the pizza maker’s controversial founder and CEO John Schnatter, is seeing its investment pay off big during the coronavirus.

On Wednesday, Papa John’s stock soared 6 percent to close up $4.57 a share, to $78.76, after its new CEO, Rob Lynch, said the company saw a second straight month of record sales in May — boosted by coronavirus quarantines.

But Papa John’s stock is up more than 70 percent since Starboard first invested in February 2019, said Mark Kalinowski, of Kalinowski Equity Research. “Starboard has done very, very well for itself in this investment,” Kalinowski said.

The gains to Starboard’s 20 percent stake translate to a profit of roughly $200 million, according to sources and public records. It’s a win for Starboard CEO Jeff Smith, known for advocating for hotter breadsticks and saltier cooking water at Olive Garden following an investment in the chain’s parent company, Darden Restaurants, in 2014.

At the time, the recommendations were ridiculed, but Starboard turned the company around — solidifying Smith’s activist reputation.

The hedge fund has made similarly dramatic changes at Papa John’s, sources said. After helping boot Schnatter as chairman, Smith took over the board and filled the CEO slot with Lynch, a turnaround maverick known for driving growth at Arby’s. He also tapped NBA legend Shaquille O’Neal to be the public face of the company.

On Wednesday, shares in Papa John’s closed up more than 100 percent from the month before Starboard arrived. At the time, the company was reeling from a series of controversies, including revelations that Schnatter had used racial epithets on a company conference call.

On the day of Starboard’s first $200 million investment, on February 4, 2019, the stock closed at $41.97 a share. Starboard followed up within weeks with another $50 million investment, giving the fund a roughly 20 percent stake.

“That stock was DOA when they went in on it,” said one analyst at a rival fund. “It was definitely on the way back even before the lockdowns.”

Additional reporting by Lisa Fickenscher


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