Surfstitch Group Ltd.’s (ASX: SRF) shares went into a trading halt just ahead of the second downgrade in profits in two months as the co-founder and Chief Executive stepped down, leaving shareholders baffled. SRF has plunged 66.25% in the last three months as at June 06, 2016.
 
Justin Cameron, the former CEO, is keen to return to the helm, but has been turned down by the board. Sources close to him say that he is trying to repair the harm caused by a sudden resignation in March to pursue the privatisation backed by private equity and a profit warning subsequently. This is news that he is believed to still be eager about privatisation, but his original backers (thought to be TSG Consumer Partners, the private equity firm based in the US) have walked away from the transaction. A month before his exit, Mr Cameron had shocked investors on news related to the downgrade of the earnings guidance for the full year, reasoning that the company needed the flexibility to invest in content such as documentaries and music reviews about surfing in order to push sales of surfing related equipment. This resulted in a share price drop of about 40%. Now, barely 2 months later, the share price has fallen by another 50% after a warning that EBITDA for the year ended 30 June could decline by at least 61% to between $ 2 million and $ 3 million, meaning that the loss for the June half was $ 12 million. Meanwhile SRF brings to investors’ notice that the trading halt is a requirement to allow the company to provide the market with a further update on EBITDA for the year ending 30 June 2016.
 
It is highlighted that the company seems to have problems with integrating a number of acquisitions in the content area and rebrand e-commerce operations because of a slump in North America, the biggest market. Experts think that the company could be in trouble in terms of EBITDA after resorting to heavy discounting in North America and Australia to liquidate slow-moving inventory. Investors believe that the earnings of the company have been negatively impacted significantly by the continued weakening of its business in the US and the costs of integrating the earlier string of acquisitions. The company had, last year paid $ 23.7 million for the acquisition of the specialist water board distributor Surf Hardware International and, before that, $ 21 million for Stab, a leading online platform and $ 15 million for Garage Entertainment and Production.
 

1H16 Key Financials (Source: Company Reports)
 
However, some factors such as 1H16 revenue growth of 40%; co-founder, Lex Pedersen’s, association with SRF and efforts; and a probable takeover play, may have another story untold as of now for SRF. The company has also issued a cleansing notice about 1.4 million fully paid ordinary shares being issued to sophisticated investors at the back of agreement on 100% acquisition of shares in Rollingyouth Pty Ltd. We look forward to company’s announcement or any updates with the commencement of normal trading on June 09, 2016.

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