Above: SurfStitch founders Lex Pedersen and Justin Cameron during better times at the troubled company. Photo: The Australian
Less than 12 months ago SurfStitch had dramatically risen from humble beginnings in Northern Sydney to become one of the industry’s biggest players.
Now it appears to be in a state of turmoil.
The online retailer, surf hardware distributor and media mogul has investor confidence dwindling and shares plummeting after announcing it had posted a loss of nearly $155 million this past financial year.
Shares crashed by more than half today to just 11 cents following news of the heavy losses and plans to sell off hardgoods company Surf Hardware International – owners of FCS fins/hardware and Gorilla among others – which it acquired last December for a cool A$23.7 million.
SurfStitch’s share price has now collapsed more than 95 per cent since peaking at $2.09 late last year, when its aggressive business strategy led it to purchasing multiple assets including SHI, Stab Magazine and online swell forecaster MagicSeaweed.
The company was reportedly worth more than $511 million – bigger than surfwear giant and former majority stakeholder, Billabong. Today, it is valued at just $30 million.
The poor results come in the same year that both chairman Howard McDonald and CEO Justin Cameron stepped down. Cameron quit unexpectedly in March to supposedly pursue a private equity-backed privatisation, which failed to come to fruition.
Recently appointed CEO Mike Sonand has promised to return the company to profit through a new stabilisation plan.
“The results are clearly very disappointing,” CEO Mike Sonand said in his announcement to shareholders.
“The number one priority on my new appointment was to implement a stabilisation plan with a key focus that the business has better control of its cash flow.”
Above: Recently appointed CEO Mike Sonand hopes to bring the company back to profit. Source: AFR
Part of the company’s stabilisation plan will be to reduce its UK workforce by 25 per cent, reduce inventories and review all expenditures of the group.
Mr Sonand said SurfStitch was forecasting another year of single digit sales growth with an underlying earnings loss of $2 million to $3 million. Cash from operations is also forcasted to fall by $6 million to $7 million in 2016/17.
And the bad news keeps coming for the SurfStitch, with its Annual Report revealing that the company is being sued by former partners and sullpliers Coastalwatch Ltd, Three Crowns Investment Pty Ltd (TCI) and Coastalcoms Pty Ltd over failed app branding and software licensing deals.
As a result, SurfStitch was forced to reverse $20 million in revenue and earnings from the failed deals.