SurfStitch has gone into a trading halt after class action was launched against the online clothing retailer.
The company, applying for a trading halt on the ASX, says it has received a statement of claim filed in the Supreme Court of Queensland.
SurfStitch says it’s assessing the claim and preparing a response.
The class action launched by lawyers Quinn Emanuel claims SurfStitch was trading at a loss when it announced in 2015 that it was expecting earnings to double in the 2016 year.
SurfStitch is accused of misleading and deceptive conduct and breaching its continuous disclosure obligations
The company’s shares fell 9% yesterday to close at $0.068, well down on the record high of $2.09 and the $1 list price in 2014.
SurfStitch on Monday announced another profit downgrade, saying full year losses are now expected to be about double the size since the last estimate in February.
The company is now forecasting an underlying EBITDA (earnings before interest, tax, depreciation and amortisation) loss for the full year of between $10.5 million to $11.5 million, a sharp deterioration from the $5 million to $6.5 million forecast in February and the previous estimate of a $4 million to $5 million loss.
SurfStitch says the retail environment has made it difficult to deliver the planned sales and gross margin improvements as quickly as expected.
Clothing retailers in Australia have been under pressure from emerging competitors online and weak market conditions.
SurStitch CEO Mike Sonand says the company has made substantial progress in to cutting costs, streamlining operations and transfer its core SurfStitch.com website to a new platform.
However, Sonand says the general business environment for apparel and footwear has been very difficult in each key market, particularly in the UK.
Surfstitch’s management was restructured after the surprise departure of CEO and co-founder Justin Cameron in March last year. The company then said it understood Cameron was pursuing a potential acquisition of the business in conjunction with private equity. There has been no news since.
The company says the integration of companies acquired over has been slower than anticipated and the benefits lower than expected.
The retailer is now looking at the sale of some or all of its assets.