Surfstitch's suspicious share price movements are questioned for a second time

The Shark Island Challenge off South Cronulla Point. Cameron Spencer/Getty Images

The share price of Surfstitch, the online surf clothing retailer, has now dropped significantly twice before major announcements were made to the market.

Surfstitch shares have been on a slide after a series of profit warnings and the surprise departure of its CEO and cofounder Justin Cameron in March.

The shares are trading at 24 cents, down 5.8% so far today, and a long way from a year high of $2.13 in November.

The ASX has now pinged the company twice about suspicious share movements.

In the latest, the ASX wanted to know why the shares fell to 40.5 cents from 46 cents between Thursday, June 2, and Monday, June 6, before Surfstitch went into a trading halt the next day.

There was a noticeable rise in trading volume before the halt.

On June 9, the company announced its second profit downgrade in a month. Surfstitch 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 to be $2 million to $3 million ahead.

The issue was the loss of revenue from a failed deal to licence the use of the company’s content contained in SurfStitch, Garage Entertainment, Rolling Youth and Magicseaweed.

The effect is that $20.3 million of booked revenue had to be reversed.

The next day, June 10, the ASX issued a please explain to Karen Birner, the CFO and company secretary of Surfstitch.

Today Surfstitch replied:

“The company had not heard any rumours or seen any evidence that confidentiality in relation to the relevant information, or the company’s assessment of that information, had been lost. The company is not aware why the share trading occurred.”

Surfstitch was also pinged in May following similar share price movements.

The shares went from $1.10 on Tuesday, April 26, to $1.04 on May 2. Again, there was a rise in trading volume.

The company then issued a profit warning on May 3 when it came out of the trading halt.

Surfstitch then said it anticipated 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.

The share price dropped by more than half to 48 cents.

Again, Surfstitch said it had no knowledge of any leakage of information.

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

The company’s management has been restructured after the surprise departure of Cameron.

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 had 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 Lex 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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