SurfStitch coming apart at the seams
Shares in Surfstitch plumetted over 50% this morning on the back of a second profit downgrade in as many months. Investors fled the stock following news that Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for 2016 were valued at between $2 and $3 million dollars. The original forecast was for EBITDA between $15 and $18 million.
In comparison, EBITDA for financial year 2015 were $7.7 million.
SurfStitch floated in late 2014 with an initial price of $1. Soon after they bought Stab magazine, Magic Seaweed surf forecasting, Garage Entertainment, and Surf Hardware International (FCS) for a combined sum of $60 million. The suite of companies was intended to form a symbiotic media network that would all fall under the 'SWELL' banner, the goal being to boost their online goods sales.
In late 2015 SurfStitch hit its highest value of $2.13, ostensibly validating their bold sales plan, however since then it's fallen into tatters.
In February the stock fell 40% as the founders, Justin Cameron and Lex Pederson, struggled to convince shareholders to hold tight on their longterm goal. Then in March, Cameron unexpectedly quit, offering his resignation in a one line email to board chairman Howard McDonald.
It was suspected Cameron may lead a takeover bid to buy SurfStitch yet nothing has eventuated. In the last week it's been reported that UK fast fashion outfit ASOS and Chinese e-commerce giant Alibaba have looked at the company.
Now the stock has tumbled further and a takeover appears imminent, and for markedly less then when it was first mooted.
All of this places a question mark over SurfStitch's longterm plans. From the outside the integration of Stab, MSW, and Garage hasn't halted, cross promotions continue, the new SWELL website is almost complete, yet the end goal appears less certain than it did six months ago.
Comments
What did they offer you guys for this site?
You're implying they made an offer.
surely they didnt bypass you guys directly for MSW....
Hmm another company tries to stitch up surfing, take over everything squeeze out the little guys and low and behold it ain't working, could this be a little bit of karama? or just a bad business plan.
Yep Hubris in investment markets episode #247895495
List
Use funds to hoover up many brands
Whoops
See: RIO/Alcan 2007
BBG and ZQK
WOW/Masters more recently
And the shareholders buy your ram...
Id like to believe it's Karma for being too greedy.
Michael Smith from the Financial Review is scathing:
"The company's appalling performance and the mystery surrounding co-founder Justin Cameron's decision to quit in March with news he was considering a possible takeover bid raise some serious questions.
Why exactly did Cameron, who still owns shares in the company, decided to jump ship when he did and is a potential takeover anything more than a handshake agreement between him and a potential private equity investor?
The latest miss in guidance also puts the spotlight on the role the board played in monitoring Cameron's aggressive growth strategy and a string of acquisitions.
The company is now forecasting a 61 per cent drop in full-year earnings before interest tax depreciation and amortisation to between $2 million and $3 million.
This is a fraction of the $15 million to $18 million the company originally forecast. The extent of the downgrade must be attracting some attention from the corporate watchdog."
http://www.afr.com/brand/chanticleer/surfstitch-wipeout-after-growth-pla...
too many people buying in bricks and mortar stores and supporting their local business. Get out there and support your multinational online store before they disappear.
The surf industry just isn't what it used to be.
I can't shoplift from Surfstitch.
Mcintosh and Reilly did alright eh ?
Knives are out! Cunt of an industry it is!
The debacle continues! How can this stuff even go on without the appropriate investigations? At what point does the company actually run out of cash given that it is now only making a small amount of EBITDA and it must have quite a bit of interest and depreciation coming off that?
I wish they had of bought my blog :'(
I'd be LOLing all the way to the Caribbean.
I like the way it works. Buy up big using the proceeds of a stock issue, grab some shares on the way, run the company downhill, sell your shares before they slide too far, pick up the mess for 10% of what you paid back at the start.
Start again.
And as a Director of a public company cashing in before the company becomes insolvent, negates personal liability.
Ka-ching!
Lots more editorial starting to appear.
Motley Fool: "I was lucky enough to sell out of my Surfstitch holding last week – before the share price crashed 53% yesterday."
"It wouldn’t surprise me to see a shareholder class action, given the surprises the company has delivered to shareholders."
Courier Mail: "WHERE the heck is Justin Cameron? Analysts following the Gold Coast-based outfit now wonder what he knew about the company’s prospects before heading for the exits."
"It’s clear now that the company fell victim to discounting and ramped up advertising costs to counter a downturn in overseas markets."
"SurfStitch said this week it had launched a “transformation program’’ to rebrand its multiple online businesses and overhaul its management structure. But sceptics have their doubts about whether it will work. “The earnings degradation is so severe that it seems unlikely they’ll be able to recover from this. They’re bleeding like a cow in an abattoir,’’ one broker said."
SMH: "Surfstitch shareholders say former chief executive Justin Cameron would get knocked over in the rush if he launched a bid for the online retailer following a massive profit downgrade that sent the shares plunging more than 50 per cent."
"Shocked investors said Surfstitch had played into the hands of Mr Cameron, who resigned unexpectedly in March to pursue a private-equity backed privatisation of the company he founded in the garage of his northern beaches home in Sydney in 2007."
"Another shareholder described the downgrade as "a punch in the guts" and questioned how much Mr Cameron knew of the impending profit plunge when he resigned in March."
Wow.
The ASX has issued an official "please explain" to SurfStitch about (1) the time they became aware that their profit forecast was about to plunge, and (2) about 'suspicious trading' during the week before the profit warning.
SurfStitch reckon the first they new of the forecast plunge was "late evening on Monday May 2nd" (the day before it happened); and say that they know nothing about the trading period in question, and that it was "relatively low compared to longer-term averages".
The official request (and response) is up on the ASX website (PDF link below).
http://www.asx.com.au/asxpdf/20160505/pdf/4371lwl894fx1g.pdf
Asking the right questions thermalben. I did the AICD course two years ago and learned this very basic, but important quote, from a seasoned veteran...
'don't put your hand up to be a Director on the ASX if you're not prepared for the kicking'.
....just read the response from SurfStich to the ASX. That will not go down well. I would suggest the ASX are, to be mild, 'Not Happy Jan'.
Yes, this ain't over. I think you will find that ASIC will get involved here. ASX have highlighted a key issue. Then this will flow on. Then there are class actions. It ain't over by a long shot.
At least they're still dropping sweet clips like this:
SurfStitch have just announced the resignation of Chairman and Director Howard McDonald.
Not sure if it's related, but this follows an interesting article four weeks ago in the Sydney Morning Herald:
http://www.smh.com.au/business/cbd/surfstitch-investors-overlooked-a-key...