Companies typically prefer neat and orderly transitions of executive power, so when Papa Murphy's (NASDAQ: FRSH) CEO Eric Calwell abruptly quit the company last week, it's not surprising its stock tumbled 4% on the news.
Papa Murphy's has been feeling the effects of the broader sales slowdown hitting the restaurant industry, and no segment has endured more than the once-vaunted fast-casual niche, especially among pizzerias. Same-store sales at Papa Murphy's were down 5.8% in the third quarter, and as much as 7.7% in company-owned stores.
As restaurant operators sought to capitalize on what was then the soaring popularity of industry leader Chipotle Mexican Grill, pizza parlors thought they too could parlay the demand for fresh ingredients into something more than a fad. Fresh casual pizza chains blossomed across the country, including PizzaRev, which was backed by Buffalo Wild Wings; Pie Five; Blaze Pizza; and Papa Murphy's. It got to the point that so many establishments wanted to be "the next Chipotle of pizza" that Chipotle Mexican Grill itself joined the fray, partnering with fast-casual pizza shop Pizzeria Locale.
Yet the trend quickly lost steam, and while it initially looked like it would only be Chipotle suffering due to its food-borne illness outbreaks, it wasn't long before the broader industry started to decline. Now there's a shakeout coming to the fast casual pizza segment, and Papa Murphy's poor performance is only one symptom of it.
The pizza chain has lost 60% of its value over the past year, and it was perhaps inevitable that Calwell, who was at the helm when Papa Murphy's went public in 2014 -- riding the wave of popularity to a muted IPO that only raised some $64 million -- would step down. Still, the markets don't like surprises, so the abruptness of his resignation, which forced Chairman Jean Birch to step into the interim-CEO role until a replacement can be found, caused the stock to drop.
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Rich Duprey has no position in any stocks mentioned.