Wipeout: Surfstitch Group Ltd sinks on profit update

Surfstitch Group Ltd (ASX:SRF) shares have lost 90% of their value in under a year.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »