Online surf wear retailer SurfStitch has delivered a trading update which was as bad as what the market had come to expect after asking for a trading halt earlier in the week – there was lots of red ink.
And it was not a pretty sight for investors who marked down the shares nearly 30% to 32 cents.
The main bit of bad news was a warning that it will plunge $18 million into the red this financial year
In the update chairman Howard McDonald said while trading conditions had not changed since a profit downgrade in May, revenues were expected to fall $20.3 million short of earlier forecasts after SurfStitch was forced to unwind a licensing agreement.
“The impact of the above charge means the company now advises that pro-forma earnings before interest, tax, depreciation and amortisation for fiscal year 2016 is likely to be a loss, in the range of $17.3 million to $18.3 million," the company said.
SurfStitch expects to return to profitability and be cash-flow positive during 2017.
It was the second profit downgrade in the space of two months. The last one estimated earnings at $2 to $3 million for the year to June – after earning $13.1 million in the December half year. Earlier in the year the company had estimated full year earnings at $15 to $18 million – so in effect the turnaround is approaching $36 million.
The company also used the statement yesterday to report the hiring of Mike Sonand as its new chief executive. He replaces cofounder and CEO Justin Cameron who quit in March amid rumours he was trying to get together with private equity to take Surfstitch private again.
Nothing has come of that. Earlier this week there were reports Mr Cameron had tried to rejoin the company but had been rebuffed by the board.
Mr Sonand, whose starts right away, has previously held senior roles at Myer, Globe International, Just Jeans and Pacific Brands, while more recently serving as chief operating officer of Charles Parsons Group.
“There are both major opportunities and challenges and one of my first priorities is to establish an operating and management framework that I believe will restore the business to a position of strength,” he said in yesterday’s statement.
Surfstitch added there had been no further deterioration in trading conditions since it last cut its forecasts on May 3, with the disappointing update tied to the reversal of revenue from the amendment of a perpetual licence contract.
