Shares in online action sports retailer Surfstitch collapsed yesterday, more than 50% in value after it shocked investors with a loss of $154.7 million.
It was far worse than any forecast and followed the impairing of the value of its stock, property and equipment by $99.3 million.
The company has been in turmoil since Justin Cameron, the co-founder and former CEO quit the business in March amid talk of a buyback bid and private equity interest.
But nothing emerged so far and the shares continued weakening, but got pounded yesterday to a new all time low of 10 cents, before ending the day at 10.5 cents, down 54%.
At this price, Surfstitch is worth $29million against the half a billion late last year.
‘Underlying’ revenue rose 18% to $235.6 million, but, its gross profit margins slipped from 46% to 39%. Underlying earnings slumped to a $18.8 million loss for the year down from its original forecast of an $18 million profit (but around the guidance and downgrade issued earlier this year).
CEO, Mike Sonand who replaced Cameron, said yesterday the impairment was reflected in the statutory earnings before interest, tax, debt, amortisation loss of $139.1 million.
“The results are clearly very disappointing,” Mr Sonand said yesterday in something of an understatement.
"Surfstitch is fundamentally a great business but the company has been through a period of rapid expansion, which has involved significant management time.
"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 the accelerated roll-out of the ecommerce platform, planned global rebranding and other initiatives had an impact on expenses and cash flow.
"The No.1 priority on my appointment was to implement a stabilisation plan with a key focus that the business has better control of its cash flow."
And as a result of the review of its business, Surfstitch has decided to offload its Surf Hardware International website and has appointed Deloitte Finance Advisory to assist in “pursuing divestment options".
The losses are expected to continue this financial year, with Surfstitch forecasting a full-year earnings loss of between $2 million and $3 million for fiscal 2017. No wonder investors abandoned the stock yesterday.
