SurfStitch has pulled down the shutters in the face of legal action bigger than the market values its shares.
The company today extended its voluntary trading halt until August as the online clothing retailer ponders a possible complicated negotiated settlement to a class action against it.
The company originally went into a trading halt on Wednesday and was expected back on the ASX board today after studying the class action.
The potential damages from the action could be as high as $100 million, dwarfing the market cap of about $19 million.
The shares last traded at $0.068, well down on the record high of $2.09 and the $1 list price in 2014.
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 now says the level of damages sought is substantial and there is a “high level of uncertainty” on the outcome of the action.
The company says it will fully explore the option of a negotiated settlement at a level which would permit SurfStich’s continued “financial viability”.
SurfStitch says the trading halt is expected to continue to August when the company’s full year results are expected to be announced.
The company now says it also plans to expand and expedite a restructure and rationalisation. SurfStitch has previously said assets sales are on the table.
“This is likely to constitute a lengthy and complex process, which may involve a series of corporate transactions and interdependent decisions impacting the SurfStitch group,” it says.
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.
However, the company says it has made substantial progress in to cutting costs, streamlining operations and transferring its core SurfStitch.com website to a new platform.
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.