WHAT was once a market darling has now been dubbed one of the worst IPOs of the past two years, but SurfStitch Group Limited (ASX:SRF) is still adamant it will return to a position of strength.
The Gold Coast-based surf wear retailer today lifted its trading halt and announced that pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) for FY16 is likely to slump to a loss of $17.3-$18.3 million.
It's the second profit downgrade by SurfStitch this year after the company last month 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.
At the time, the company said that given the pace of change and long-term opportunities presented to the business, management and the board believed it was no longer prudent to focus on a defined EBITDA range.
While SurfStitch shares were trading as high as $2.13 late last year, the shares slumped to below $1 after the February announcement.
The May profit warning pushed the shares even lower, keeping them around 40c for the past month.
Today's news delivered another blow to shareholders with the stock falling more than 30 per cent to a low of 25c.
SurfStitch has attributed its profit downgrade to challenging trading conditions in key markets, near-term investment in the company's platform and processes and the slower than anticipated integration of the companies acquired over the prior 12 months.
Meanwhile, after warning the company is set to plunge into the red this year, SurfStitch has appointed clothing retailer Mike Sonand as chief executive.
He takes on the role after co-founder and former chief executive Justin Cameron quit unexpectedly in March to pursue a private equity-backed privatisation of the company, which appears to have come to a standstill.
Joint CEOs Lex Pedersen and Justin Stone, who have kept the seat warm for Sonand after Cameron's departure, will take on new roles. Pedersen will be director of business development while Stone will be director of global support.
Under Sonand's leadership, the company expects to return to profitability and be cashflow positive during FY17.
SurfStitch chair Howard McDonald says Sonand has already spent time visiting all businesses within the group.
"He has already demonstrated a firm grasp of the company's immediate priorities and growth initiatives," he says.
Sonand says he is excited to lead a 'highly innovative business'.
"There are both major opportunities and challenges and one of my first priorities is to establish an operating and management framework, which Lex's and Justin's new positions are part of, that I believe will restore the business to a position of strength," says Sonand. "I am fully focussed on rebuilding value for shareholders."
Sonand has experience in the retail sector in Australia and internationally most recently working as the COO of Charles Parsons Group.
In 2010 he was CEO of M Webster Holdings and partly responsible for the successful turnaround of the business.
He also completed a successful stint as CEO of Globe International where he helped triple market capitalisation of the company from $70 million to $220 million.
Picture L-R: Lex Pedersen and Justin Cameron
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