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Category: Retail / Media / Surfing

Investors dump Surfstitch as it comes apart at the seams

Tuesday, 30 Aug 2016 16:19:35 | Stephen Letts

A surfer flips upside down after riding big waves that hit Bronte Beach in Sydney on March 3, 2008. (Ezra Shaw: Getty Images)

Less than 20 months since listing, surfwear and media company Surfstitch looks to be coming apart at the seams after shares plummeted to new depths on announcing a $154 million full-year loss.

Shares crashed more than 50 per cent today to just 11 cents on the news of the heavy write-downs, anaemic guidance and the sale of a surfboard manufacturer it purchased late last year for $24 million.

Surfstitch's share price has now collapsed more than 95 per cent since peaking at $2.09 late last year, when it was being touted as a new wave company that had managed to combine online retailing with savvy digital media.

The company's short history has been marked by a volatile share price, an aggressive growth by acquisition strategy and upheaval in management ranks.

Having grown out of a backroom operation on Sydney's northern beaches, Surfstitch originally planned to list on the ASX in late 2014 at price between $1.50 and $1.80, but settled for an issue price of $1.

The float included a $12 million cost relating to its separation from its former majority stakeholder, Billabong – another surfwear business with a rather troubled recent past.

Aggressive growth plan comes unstitched

Since its listing, Surfstitch has made six significant acquisitions across clothing, digital media and surfing hardware.

It has also tapped investors twice for more capital, including a $40 million raising in May 2015 to buy the surf weather site Magicseaweed and the digital publication Stab Magazine, as well as another $50 million last November for acquisitions including Surf Hardware International, which is now back on the market.

Surfstitch share price since listing Photo: Surfstitch shares have crashed since a peak late last year.

Along the way, founding chief executive Justin Cameron suddenly bailed out in March, while the company has issued three profit warnings this year alone and now faces the prospect of a class action from irate investors.

The statutory loss includes a range of impairments to goodwill - or the value of its brands, property and aged inventory - totalling $99.3 million.

While sales grew by 7 per cent over the year, this was largely due to the spate of acquisitions.

Margins slumped from 46 per cent to 39 per cent and underlying pre-tax earnings were reported as a $19 million loss.

The company's annual report also revealed it was facing legal action from three former partners and suppliers over a failed software deal, which has forced the company to set aside another $20 million in earnings relating to the action.

Surfstich's chief executive – the third this year – Mike Sonand said the results were clearly very disappointing.

"The company has been through a period of rapid expansion, which has involved significant management time in effecting the relevant acquisitions and two major capital raisings," Mr Sonand said in a statement to the ASX.

"A focus on increasing market share, combined with difficult trading conditions – particularly in North America – had a major impact on retailing margins and overall results."

Mr Sonand said his top priority was to implement a stabilisation plan with a key focus to better control cash flow.

The company is forecasting single-digit sales growth for 2017, with an underlying pre-tax loss of $2 to 3 million.

Executives and directors enjoy a big pay rise

Co-founder Lex Pedersen - who stepped in as interim chief executive after the departure of Mr Cameron – saw his base salary for the year jump from $280,000 to $634,000, although the lack of short term bonuses saw his overall remuneration slip.

Mr Cameron's base salary also leapt from $220,000 to $561,000 in the eight months to his March departure.

Chairman Howard McDonald's total remuneration jumped 40 per cent from $71,950 to $100,903, although none of the increase was performance related.

The board failed to declare a dividend, although this was not a surprise.

AustraliaPlus


 

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