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SurfStitch forecasts lower earnings, reaffirms strategy

Following the surprise departure of its CEO and challenging trading conditions, SurfStitch has warned its earnings will be considerably lower this financial year.

Releasing its half year results in February, the group did not reaffirm the company’s full-year EBITDA guidance sending shares southward. In March, then-CEO Justin Cameron resigned via email, reportedly to launch a takeover bid for the company in conjunction with private equity.

However any kind of acquisition offer is yet to materialise.

In a statement to the market today, SurfStitch said, “it has received no communication of any kind from Justin Cameron, private equity or any other identity in relation to offers for acquisition.”

The company is now forecasting that pro-form EBITDA for the year ending June 30, 2016 will be between A$2 million and A$3 million. This is compared to an EBITDA of $7.7 million if FY15.

The company announced this morning that since its half year results in February, revenue growth has continued at strong double digit growth across all markets. However, trading conditions have been challenging across key markets, resulting in higher advertising costs and impacting gross margins.

SurfStitch is currently rebranding its three separate e-commerce businesses to a single global brand – Swell – and centralising them on a common platform. This will create a content-driven ecosystem, following the acquisitions of digital production companies last year.

“While the company remains confident that this is the right strategy and will underpin its long-term sustainable growth, it has required considerable near-term investment in its platform and process,” the company said today.

Lex Pederson, joint-CEO, said there had been solid testing and validation with the businesses acquired over the last 12 months but integration has not been as fast as expected.

“These 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,” he said.

“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.”

Joint-CEO, Justin Stone, said the website integration was on track to be completed by September and that he is confident the business is on the right path.

“Considerable work has been completed on the Swell rebranding with a global research and brand communications agency to ensure a clear and unambiguous brand strategy,” he said.

New COO appointed
SurfStitch has appointed Mike Sonand as the company’s new chief operating officer, effective immediately, to assist the transformation process.

Sonand was previously the COO of the Charles Parsons Group and CEO of M Webster Holdings and Globe International.

“Mike is a valuable addition to the SurfStitch executive team given he has strategically implemented consolidation initiatives, has held executive roles at CEO, CFO and COO levels and has strong financial skills,” said Howard McDonald, company chairman.

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