Papa John's missed on both the top and bottom lines, but its comparable sales slump was better than feared.
The pizza chain slashed the high end of its profit guidance, but lifted its North America comp sales guidance.
Founder John Schnatter resigned as chairman in July following reports that he had used a racial slur on a media training conference call.
The company said that negative headlines began in July have continued to impact North America system-wide sales.
Papa John's rose 6% early Wednesday after the company posted a comparable sales slump that was not as sharp as Wall Street had feared, and lifted its North America comparable-sales guidance.
The pizza chain said Tuesday that it earned $0.20 a share, which is $0.02 lower than what analysts surveyed by Bloomberg were expecting. It generated $364 million sales, missing the $391 million that was anticipated.
Meanwhile, system-wide North America same-store sales decreased 9.8%, better than the 10.7% decline that Wall Street had feared.
“During the quarter, we took important actions resulting in improved consumer sentiment and North America comp sales that were slightly ahead of expectations," CEO Steve Ritchie said in a press release.
Papa John's has been surrounded by negative publicity after its founder John Schnatter resigned as chairman in July after he used a racial slur on a media training conference call. The restaurant chain said that negative headlines following the event have continued to impact the North America system-wide sales and it cannot predict how long and the extent to which negative publicity will continue.
Since then, the pizza chain has been reportedly put itself up for auction. Reuters recently reported that private equity firms including Bain Capital and CVC Capital Partners are competing to buy a stake in Papa John's.
"While the operating environment remains challenging, these early indicators combined with our strong cash flow give us confidence in the consumer initiatives underway across the Company," Ritchie added.
Looking ahead, Papa John's slashed the top end of its earnings guidance and said it now sees adjusted earnings per share in the range $1.30 to $1.60, down from its previous forecast of $1.30 to $1.80.
Meanwhile, the company boosted its North America comparable-sales decline to between 6.5% and 8.5%, up from the 7.0% to 10.0% drop it had previously expected. Papa John's reiterated its international comparable sales guidance of negative 2% to positive 1%.
"3Q results significantly depressed, as expected given ongoing negative brand sentiment issues," Alexander Slagle, an analyst at Jefferies said in a note sent out to clients Wednesday.
"However, 3Q same-store sales of -9.8% were a little better than feared, with trends accelerating into September on new marketing campaign and app download promotion. Still plenty of work ahead, but progress being made, same-store sales likely bottoming, and there are multiple paths leading to further value creation."
Slagle lifted his price target to $61 from $58 — 14% above where shares were trading on Tuesday — and reiterated his "buy" rating.
Shares were up 3% through Tuesday.