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GOLD Coast online retailer SurfStitch is swimming in hot water after national law firm Gadens announced it was engaged in a preliminary investigation of the financial circumstances of the business.
This comes on the back of SurfStitch's announcement last week that pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) for FY16 was likely to slump to a loss of $17.3-18.3 million.
That was the second profit downgrade by SurfStitch this year after the company revised its guidance for EBITDA from as much as $18 million to as little as $2 million. That news came on the heels of a massive share slump in February, when the company failed to offer a full-year profit guidance for FY16.
Gadens says it is considering a possible class action and says it will inquire about the initial float of SurfStitch in 2014 and the manner in which its affairs have been conducted since.
"There are issues about the sufficiency of the disclosure made by SurfStitch at the time of the float and thereafter concerning its extensive business and brand acquisition program and the effect that program would have on its share price," says Gadens in a statement on its website.
SurfStitch shares floated at $1 each in December 2014, rose to a high of $2.13 in November 2015 and today are trading around 26c. SurfStitch's market capitalisation has dropped by more than $500 million.
Glenn McGowan QC, Gadens chief counsel Melbourne, is at the forefront of the possible class action, which will also question whether SurfStitch complied with its continuous disclosure obligations and properly kept the market informed of matters affecting its share price or value.
"Shareholders might wish to know whether more information could have been made available to them by SurfStitch about the reasons for this decline in the value of their investment," says Gadens.
"Shareholders might also wish to know whether they could have been informed earlier of such information or of the information forming the basis of the downgraded forecasts."
Gadens is encouraging shareholders to register their interest in participating in a possible shareholder class action against SurfStitch.
Picture L-R: Lex Pedersen and Justin Cameron
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