Surfstitch shares have been suspended for at least three months after the troubled online sports retailer was hit by a $100 million shareholder class action.
The retailer on Friday said it expects the suspension to last until its full-year results at the end of August, and that it will end with an agreed settlement of the claim or Surfstitch concluding a settlement is unworkable or undesirable.
Law firm Quinn Emanuel this week filed an action in Queensland’s Supreme Court alleging SurfStitch failed to tell shareholders it was trading at a loss and then tried to cover it up.
Surfstitch shares have been in a trading halt since Wednesday while the board reviewed the claim.
“While the quantum of the claim remains unknown, the subject matter of the claim is highly complex in nature and the level of damages sought pursuant to the claim is likely to be substantial and, as such, material by comparison to the current market capitalisation of the company,” Surfstitch said in a statement to the Australian Securities Exchange.
That market capitalisation has plunged from about $590 million in November 2015 to just $18.9 million.
Surfstitch, whose shares plummeted from $2.13 to an all-time low of 6.8 cents in just 18 months, said it was also accelerating its restructuring plans in light of the legal action.
Backed by litigation funder Vannin Capital, the class action announced on Tuesday is open to anyone who purchased or held Surfstitch shares between August 27, 2015 and June 8 last year.
Quinn Emanuel said Surfstitch, founded in 2008 by equities analyst Justin Cameron and retailer Lex Pedersen, should never have made or repeated its 2015/16 earnings guidance of $15 million to $18 million.
Underlying earnings before interest, tax, depreciation and amortisation for the period – which excluded share based payments, acquisition-related costs and impairment charges – announced in August 2016 turned out to be a loss of $18.8 million.
The latest in a series of guidance downgrades came on Monday, when Surfstitch said it expected its full-year loss to double and it would close its US office.
Surfstitch was majority owned by Billabong before the struggling surfwear firm offloaded its 51 per cent stake, clearing the way for an IPO in December 2014.
A brief timeline of embattled online sports clothing retailer Surfstitch’s fall from grace.
2007 – Justin Cameron and Lex Pedersen launch the business from a garage in Sydney’s Northern Beaches.
2009 – Billabong acquires a stake with the option to acquire 100 per cent of the business.
2012 – Having relocated its head office from Sydney to Queensland’s Gold Coast, the company launches SurfStitch Europe by opening an office and distribution centre in France.
2014 – Surfstitch buys back Billabong’s 51 per cent stake ahead of its float on the Australian share market. It also acquires Billabong’s online retail website swell.com.
2016 – Cameron abruptly quits as chief executive leaving Pedersen and Justine Stone to take the reins as joint CEOs before Mike Sonand – the former boss of surfwear retailer Globe – takes over.
2017 – Following a series of profit downgrades that sent its share price tumbling, trade in Surfstitch’s ASX-listed securities is suspended during a $100 million shareholder class action alleging lack of disclosure and misinformation.
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