Shares in surfwear and sports media business Surfstitch Group Ltd (ASX: SRF) shed half their value today after the company reported a loss of $155 million for the full year ending June 30 2016. The giant loss is the result of nearly $100 million worth of impairments and the poor operating performance of the company's retail operations.
As recently as October 2015 the management team was forecasting full year EBITDA in the range of $15 million to $18 million, when in fact it today posted an EBITDA loss of $18.8 million. As a result the share price has fallen from nearly $2 at the start of 2016 to just 11 cents this morning in tandem with the credibility of management after a string of huge profit downgrades.
Surfstitch has only been publicly listed since December 2014 and around 45 million shares were released from escrow in February 2015 when the shares were hovering above $1.60. February 25 saw the start of a string of profit downgrades and the unexpected resignation of the chief executive Justin Cameron came in March 2016. On the resignation the company advised the market that: "The Company understands Mr Cameron is pursuing an opportunity relating to a potential acquisition of the company in conjunction with private equity".
Unsurprisingly nothing came of this assertion other than a brief boost to the share price just a couple of months before another huge downgrade to its earnings guidance in May 2016.
One of the company's significant shareholders is Australian equities specialist Perpetual Limited (ASX: PPT), which has been left playing the bag holder role as the stock price plummeted, despite reducing its total holding in Surfstitch to 7.25% as at June 2016.
Outlook
Given the cash outflows, terrible track record and lack of credibility Surfstitch looks one to give a wide berth as it attempts to restructure, slash costs and better manage capital. Moreover, it has a long road ahead to win back the trust of investors and the shares are likely to remain under pressure until then.
