SurfStitch issues second profit warning since March

Shares in SurfStitch slump by more than 50 per cent as investors flea following its second profit warning this year.

Shares in SurfStitch collapsed by more than 50 per cent this morning as investors fled from the online retailer after it issued its second profit warning this year.

SurfStitch this morning had plummeted 52 cents, or 50.24 per cent, to a new record low of 51.5c on its shock profit warning as trading conditions across its key markets deteriorated.

The massive slump is against an IPO price of $1 when the company floated in late 2014.

SurfStitch has issued its second profit warning in as many months as tough trading conditions across its key markets forced it to up its spending on advertising, which has crunched margins, while the shock resignation of its co-founder and chief executive Justin Cameron in March has slowed down the pace of folding in its string of acquisitions, which will also hurt earnings.

Pre-tax profits are now expected to slump by as much as 75 per cent in 2016.

And the highly anticipated takeover bid from the former chief executive Mr Cameron, who quit suddenly to join forces with an unnamed private equity firm in March, is yet to materialise, with SurfStitch also announcing in a trading update that it had received to date no communication from its former boss or any private equity group.

Meanwhile, the loss of the SurfStitch founder and a downturn in trading conditions will leave its mark on the online surfing and sports apparel retailer.

The management turmoil at SurfStitch has impacted the company’s ability to implement its transformation program and integration of the companies acquired over the last 12 months, SurfStitch warned this morning, which combined has constricted the earnings benefits that were expected to be booked in the second half from its acquisition spree.

SurfStitch co-founder and joint chief executive Lex Pederson said testing of the businesses it had scooped up in the last year had revealed the integration of the businesses had not been as fast as first hoped, with a downturn in trading also to hit the bottom line.

“These businesses present exciting content and advertising opportunities which will underpin our long term competitive advantage, but the benefits will not flow through into our results until 2017 and beyond,’’ Mr Pederson said.

The scaled back earnings guidance of $2m to $3m is against an original forecast of EBITDA of between $15m and $18m.

SurfStitch said taking these factors into account, and following a thorough appraisal of all SurfStitch businesses, the company anticipates that pro-forma EBITDA for fiscal 2016 will be between $2m and $3m. This is against pro-forma EBITDA of $7.7m in 2015.

In February, SurfStitch shares crashed 40 per cent after the recently listed company walked away from its earnings guidance as it tried to convince investors it was better off focusing on growth opportunities and future business expansion.

The company was plunged into turmoil in March when Mr Cameron quit via a one-line email to the board, as he joined forces with a private equity firm to launch a possible takeover of the group. SurfStitch, led by chairman Howard McDonald, has been scrambling since then to regroup executives and integrate the businesses that SurfStitch bought up since its $83m float in late 2014.

SurfStitch’s recent acquisition spree included spending $23.7m to purchase specialist global water board distributor Surf Hardware International as well as buying up online content and surf media sites, paying $21m for Stab, a leading online surf content platform and surf forecasting network Magicseaweed. It also bought Garage Entertainment and Production for $15m.

SurfStitch said this morning it had hired Mike Sonand as its new chief operating officer, a former COO of the Charles Parsons Group, and CEO of M Webster and surfing and skatewear brand Globe International.