SurfStitch shares have been smashed in half

Picture: Getty Images

Shares in SurfStitch dropped by more than a half after the online clothing retailer issued a profit warning.

The company says revenue growth has continued at double digit levels since the half-year results in February but trading conditions have been more challenging, with high advertising costs cutting margins.

The company now anticipates EBITDA (earnings before interest, tax, depreciation and amortisation) for the full year to be between $2 million and $3 million. Half-year profits were $5.7 million.

A short time ago, the shares were down 57% to $0.442.

SurfStitch is in the middle of a transformation program including rebranding all ecommerce businesses to a single global brand, SWELL.

This is part of an integrated content strategy to create a digital content-driven ecosystem which engages audiences at every stage of their action sports lifestyle.

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.

Today the company 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.

‚ÄúThese businesses present exciting content and advertising opportunities which will underpin our long term competitive advantage, but the benefits will not flow through into our results until FY17 and beyond,” said joint CEO and co-founder Lex Pedersen.

“Also, in line with recent experience of a number of retailers in North America, SWELL USA has faced some challenging trading conditions in the second half and as a management team we are implementing a number of initiatives to mitigate their impact.”

Today the company announced the appointment of a new chief operating officer, Mike Sonand, an experienced executive in retail and wholesale. He was previously CEO of M Webster Holdings and Globe International.

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.

The company is on a growth program, not paying dividends as it builds its market share and expands into content-related businesses.

In its latest half-year results, revenue was up 40% to $144.9 million and profit $5.7 million as it reinvests its cash. Revenue from North America was up 63% to $24.1 million.

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