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John Schnatter founder and ceo of Papa Johns
Shares of Papa John's cratered on Wednesday after a report surfaced alleging that founder John Schnatter used a racially charged slur during a conference call in May.
According to a report by Forbes, Schnatter was on a call with marketing agency Laundry Service when he tried to downplay comments he made about the National Football League and allegedly said “Colonel Sanders called blacks n-----s," and complained that the KFC founder never faced public backlash. The call was a role-playing exercise for Schnatter to prevent future public-relations fumbles.
Shares fell nearly 6 percent Wednesday following the report. Papa John's is down 13.5 percent year-to-date, compared to its toughest competitor Domino's, which is up 47 percent over the same time period.
"Papa John’s condemns racism and any insensitive language, no matter the situation or setting," a company spokesman told CNBC. "Our company was built on a foundation of mutual respect and acceptance."
Laundry Service, which is owned by sports agency owner Casey Wasserman, reportedly cut ties with an unnamed client in late May due to "the regrettable recent events that several employees of Laundry Service witnessed during interactions with a client’s executive,” according a letter obtained by Bloomberg.
Laundry Service did not immediately respond to CNBC's request for comment.
The Forbes report comes just seven months after Schnatter abruptly exited the C-Suite. Schnatter faced backlash in November for critical statements he made about the NFL that ultimately caused the league to remove Papa John's as an official sponsor.
He blamed the NFL leadership for hurting the company's performance because it hadn't resolved the ongoing controversy over players kneeling in protest during the National Anthem.
While Schnatter is no longer the CEO of Papa John's he is tied with the brand's image and is featured prominently on the company's pizza boxes.
“The past six months we’ve had to take a hard look in the mirror and acknowledge that we’ve lost a bit of focus on the core values that this brand was built on and that delivered success for so many years,” CEO Steve Ritchie said in an internal memo sent Wednesday to team members, franchisees and operators, according to Bloomberg. "We’ve got to own up and take the hit for our missteps and refocus on the constant pursuit of better that is the DNA of our brand.”
