Surfstitch downgrades profit again

Reece Fowler of New South Wales drops into a wave during the 2016 Shark Island Challenge off South Cronulla Point in Sydney. Cameron Spencer/Getty Images

Surfstitch shares were being hammered after announcing the second profit downgrade in a month.

A short time ago, the shares were down 28% to $0.29.

The online clothing retailer now expects a full year EBITDA (earnings before interest, tax, depreciation and amortisation) loss of $17.3 million to $18.3 million when previously it had expected $2 million to $3 million ahead.

The loss relates to a licence made to a third party for the use of the company’s content contained in SurfStitch, Garage Entertainment, Rolling Youth and MagicSeaweed.

The effect is that $20.3 million of revenue will be reversed.

SurfStitch expects to return to profitability and be cash-flow positive in 2017.

The company also today announced the appointment of current chief operating officer Mike Sonand as CEO.

The current joint CEOs, co-founder Lex Pedersen and Justin Stone, will assume new positions. Pedersen will be Director Business Development and Stone Director Global Support.

Sonand’s previous roles including COO of the Charles Parsons Group and CEO of M Webster Holdings and Globe International.

The company’s management was restructured after the surprise departure of CEO and co-founder Justin Cameron in March.

The surf and skateboard clothing company then said it understood Cameron was pursuing a potential acquisition of the business in conjunction with private equity.

The company in May said the integration of companies acquired over the last year has been slower than anticipated and the benefits lower than expected.

In May last year, the retailer bought a surf weather site, Magicseaweed, and a global online news magazine, Stab Magazine, for $13.8 million cash and 4.8 million shares.

In November, the company bought action and extreme sport video producer Garage Entertainment, a local Sydney company, for $15 million in cash and shares.

SurfStitch was formed by Cameron and Pedersen eight years ago. Pedersen ran Surfection, the surfwear shops, and Cameron was an investment banker and research analyst at Credit Suisse.

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