What now for Surfstitch Group Ltd?

Source: iStock

Surfstitch Group Ltd (ASX: SRF) has appointed joint CEOs and Managing Directors following the shock resignation of former CEO Justin Cameron last week.

In an announcement today, the surfwear and online action sports company said it had appointed Lex Pedersen and Justin Stone as joint CEOs and MDs. Mr Pedersen is a co-founder of Surfstitch with Mr Cameron, and currently the Managing Director and President of Swell, the company’s US arm. Mr Stone is the MD of Europe – the company’s largest region by revenue and was the founder of Surfdone.

Both Mr Pedersen and Mr Stone have plenty of experience running large parts of the retailer, so it shouldn’t be all that big a step up for them to take, suggesting it will be business as usual.

Mr Cameron resigned suddenly via email, and Surfstitch said at the time that Mr Cameron was pursuing an opportunity to take Surfstitch private in conjunction with a private equity firm.

Surfstitch saw its shares fall 30% on February 26, following the company’s announcement that it would no longer provide earnings guidance to the market, given the pace of change and opportunities for the business. In other words, Surfstitch appears to be sacrificing short-term earnings by investing for growth later.

But the fall in the share price may be an opportunity for a private equity firm with a long term outlook to make an offer while Surfstitch’s share price is low. The company says it has yet to receive an offer or proposal and has not had any contact with private equity firms in relation to the acquisition of the company. However, it would be odd if Mr Cameron had resigned so suddenly unless he had a compelling reason.

Foolish takeaway

Surfstitch forecast ‘strong double digit revenue growth is expected to continue with strong gross profit margins’ when it released it results on February 26, and there’s no reason to doubt the company. Whether or not a bid appears, Surfstitch looks to have an excellent future.

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Motley Fool writer/analyst Mike King owns shares in Surfstitch. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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