# SRF - SurfStitch Group



## System (11 December 2014)

SurfStitch is one of the leading pure play online Action Sports retailers globally. It is the only major pure play online Action Sports retailer in Australia and New Zealand, and has developed a growing presence in the European and the United States of America online Action Sports segments. SurfStitch provides over 700 brands and 30,000 products to consumers in more than 125 countries.

http://www.surfstitch.com


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## Faramir (11 December 2014)

I am a loyal customer of Surfstitch. Brought many board shorts, rashies and various stuff for myself, dresses, bikinis and other stuff for my partners' daughter. Even a skateboard. I thought they were not listed despite of rumours of them wanting to list this year.

They often have great deals. I remember buying stuff from them when they were new and based in Sydney Northern Beaches. Then they moved to Gold Coast plus they have are establishing a presence overseas. I like wearing surfing gear.

Lots of work to do.


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## Faramir (11 December 2014)

How did I missed this one? $1.00 per share, they want to raise over $83.2 million. Closing date is Fri 12 December 2014!!!!! Maybe I should have read thier emails more carefully instead of dismissing it. (Nah, I have enough for now, not interested in anymore sles for now.)

Maybe I should have stayed out of Medibannk Private and brought SurfStitch instead? (Dumb statement since I think MPL is OK, maybe not the best, but definitely not a dud.)

I must be blind, I am struggling to find real info on their IPO. Back in a few minutes.


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## Faramir (11 December 2014)

I give up. Maybe I will look into this tomorrow. I can't find a Prospectus anywhere on their website.

Good Customer relations may not equal Good Investor relations. The surf industry is highly competitive. I doubt the margins are really there. I can not say any more since I can't find much news on SurfStitch (especially in front and not behind a firewall).

Strangely, I prefer to buy a wetsuit from an actual shop where I can try it on. I will not buy a surf board on line either. That's where I draw the line. Otherwise the other stuff I buy are great.


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## Joe Blow (11 December 2014)

Faramir said:


> I give up. Maybe I will look into this tomorrow. I can't find a Prospectus anywhere on their website.




Faramir, you can find the Prospectus here: https://events.miraqle.com/surfstitch/Home/


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## IFocus (12 December 2014)

Faramir said:


> I give up. Maybe I will look into this tomorrow. I can't find a Prospectus anywhere on their website.
> 
> Good Customer relations may not equal Good Investor relations. The surf industry is highly competitive. I doubt the margins are really there. I can not say any more since I can't find much news on SurfStitch (especially in front and not behind a firewall).
> 
> Strangely, I prefer to buy a wetsuit from an actual shop where I can try it on. I will not buy a surf board on line either. That's where I draw the line. Otherwise the other stuff I buy are great.




I get my Ripcurl wetsuits out of UK (far cheaper but that could change with the falling AUD) and have been buying Firewires for a while (available online) although I purchase usually through the local surf shop (cheaper)usually get some thing off for deck pads, fins etc with the new stick.

But everything else I get online or in Bali 


I think I got my tide watch through these guys had issues but they sorted it out good customer service as I remember.


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## Faramir (12 December 2014)

Thank you Joe Blow. I have just quickly read over the Prospectus but I didn't read it properly (yet).

I missed out. The deadline is gone. Not sure if being busy today is a blessing or a curse as I had to help someone. I do not feel sad or anything because there is a lot for me to learn about IPOs.

SurfStitch is a company I love. Brought a number of items from them. Very fast delivery plus excellent service.

But I am going to show some things from their Prospectus:
Lots of Brackets. No Dividends. Lots of Acquisitions Overseas. Maybe someone can tell me that maybe I am better off holding onto my cash. I have been looking forward to this IPO for much of this year. How I found out one day too late???? Maybe it is a blessing for me?


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## Faramir (12 December 2014)

I don't mind no dividend. I understand that they are expanding rapidly.
My surfing skills are just like my investing skills - very basic.


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## Faramir (12 December 2014)

Emotions has made me fall in love with this IPO. The Prospectus is filled with lots of pretty pics of surfer girls. Realising that I can't get my head around their numbers, not knowing whether it is great or not great - that tells me that giving this IPO a miss is fine. Maybe SurfStitch will have a massive increase on its first day of trading just like Beacon Lighting (I missed out on Beacon Lighting since it was oversubscribed.) I am holding onto my cash for now. It is only an extra $14.95 of brokerage if I want to get SurfStitch later. Something tells me maybe I won't. At least if I need a rashie or boardies, I will still be their customer during sale time.


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## luutzu (12 December 2014)

Faramir said:


> Emotions has made me fall in love with this IPO. The Prospectus is filled with lots of pretty pics of surfer girls. Realising that I can't get my head around their numbers, not knowing whether it is great or not great - that tells me that giving this IPO a miss is fine. Maybe SurfStitch will have a massive increase on its first day of trading just like Beacon Lighting (I missed out on Beacon Lighting since it was oversubscribed.) I am holding onto my cash for now. It is only an extra $14.95 of brokerage if I want to get SurfStitch later. Something tells me maybe I won't. At least if I need a rashie or boardies, I will still be their customer during sale time.




It looks pretty bad Faramir.

Its managers best guess is that it will lose $11M next year; Don't know if it's normal in the industry but its inventory is high; Its goodwill is some 30-40% of total assets  - means it pay way too much for its acquisitions. 

Its projecting revenue to grow 30% next year? Don't think that's likely in this economic condition around the world... 

Just my opinions...


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## Faramir (12 December 2014)

Agreed luutzu. Look at the numbers inside the brackets. I stopped drilling down into details after that. With those numbers I doubt if this IPO will be oversubscribed.

That is why there are lots of surfer girls in the Prospectus. Lots of pretty pics. I still like surfing clothes. I think SurfStitch is a great company (to buy from). Maybe the timing is wrong for its IPO (didn't Medibank IPO knocked the enthusisam for IPOs out.) Maybe its aquisitions is too agressive. Maybe they had no choice, they would have been a target themselves. I rather spend time reading this forum than reading the Prospectus since I made up my mind not to et involved with the IPO.


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## ROE (12 December 2014)

Not sure if anyone know a background on this but I maybe able to filled in a bit here for you
I am not an investor in this but I know the history

surfstich never made any money as far as I know and it been in business for a while now.
Billabong used to have a some interest as an online play then they went and acquire full ownership

then the slide of BBG begins, in many of BBG reports and briefing it boast surfstich revenue but it never show any 
profit and yet they keep pumping more money into more inventory and expand this online business.

Apparently if you keep talking up revenue maybe people believe you it some how a good business even though it doesn't make any money ....sound like a .dot com dream again.

When BBG fall from grace and the hedgefund comes in and restructure the ownership, spins off surfstich is one way
they going to get some of their money back.

I havent read the prospectus but are they still talking about revenue grow and expand into more market
and no profit but burned cash?


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## Faramir (13 December 2014)

ROE said:


> then the slide of BBG begins, in many of BBG reports and briefing it boast surfstitch revenue but it never show any profit and yet they keep pumping more money into more inventory and expand this online business.



That explains what happened to Billabong earlier this year. Some commentor mentioned (I can't remember when this was said but I remember hearing this on ABC Radio World Today straight after 12pm news) that kids preferred QuickSilver over Billabong. Billabong has outdated fashion sense. I thought both brands were similar. Why didn't they say Billabong paid too much for SurfStitch. Billabong was 'carrying' SurfStitch.



> When BBG fall from grace and the hedgefund comes in and restructure the ownership, spins off surfstich is one way they are going to get some of their money back.
> and no profit but burned cash?



I guess those taking part in the IPO will takeover Billabong's previous role.

Great Customer Relations is not the same as Great Investor Relations. SurfStitch really discount so much of their stock during sale time. The common sizes are always sold out. This industry is very competitve. If SurfStitch reduces their large number of promos, the amount of discounts, etc - it may make a bit more profit but definitely less sales - less customers. With 700 brands and 30,000 products - they need a warehouse ie they need capital to hold stock.

A local surf shop would give us clubbies an extra 10% discount (on top of their sales) just for being a member of our local Surf Lifesaving club. This is why I sometimes buy from this particular shop due to personal customer service and they know that I am a clubbie plus a wanna-be surfie. Think of the hundreds of family owned businesses fighting back to keep our loyality. They are doing it tough but they also add pressure to SurfStitch. They won't go down without a fight. (Additional pressure involves big stores like Aldi, Big W, etc, deciding to sell CRAP to the uninformwed masses for their summer promotions.)

As usual, ROE, you are a genius and I am very grateful for your contributions. Thank you for shining a light on my comments and it only confirms my decision to give this IPO a miss.


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## Faramir (24 April 2015)

I am still interested in SurfStitch.
Floated at $1, now $1.610. Thought to myself that I missed out again. Then I read this:

http://www.asx.com.au/asxpdf/20150225/pdf/42wvd0rwz6g53h.pdf

Yes, another loss: ($5,332,000)

Another sad truth, my surfing skills needs to improve dramatically, just like my naive investing skills. Glad I never got involved in this float. Might look at SurfStitch again in six or so months time. I will buying something from SurfStitch soon (but definitely not stocks.)


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## Faramir (24 April 2015)

In hindsight, SRF would have been a great trade. Immediately after the float, it fell to $0.90. Slowly climbed and went sideways. Only last few weeks that it climbed up quickly but I'm not skilled enough to read these situations.


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## percytown (12 May 2015)

Faramir said:


> In hindsight, SRF would have been a great trade. Immediately after the float, it fell to $0.90. Slowly climbed and went sideways. Only last few weeks that it climbed up quickly but I'm not skilled enough to read these situations.




how are you feeling about this stock now? i'm in the same boat as you, i love surfstitch and mostly buy from their outlet....still, there has never been any other online store that i buy from so consistently, they have my loyalty. my housemates are also super keen on them and use them regularly. i've never discussed buying the stock with them because it's my own market research.... did you see they raised they're guidance for the next quarter? i like you are keeping a very close eye on this stock..... 
http://www.smh.com.au/business/markets/quotes/announcement/SRF/surfstitch-group-limited/1619306


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## McLovin (7 June 2016)

This company has been a disaster. Up there with TPW (although in that case the writing was pretty much on the wall from day 1). Just a month ago they downgraded EBITDA, and it looks as though it's happening again. Not to mention the pretty awful corporate governance issues they're having (CEO/founder resigns then launches a takeover bid after the stock tanks). I have a pretty dim view of these pure online retailers. I just don't think they can keep eyeballs (foot traffic) in a world where prices can be compared in 5 seconds. That's why they talk up revenue: Selling something at cost can turbocharge the topline.

On a related note, the Kogan prospectus forecasts NPAT of $400k (yes k, not m) this year on revenue of ~$200m. Fear not however, FY17 is when the big bucks will start rolling in. EBITDA will rise 138% and NPAT will rise 600%. Revenue will rise at a pedestrian 19%...says the prospectus anyway. Apparently that makes it worth $140m.


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## Ves (7 June 2016)

McLovin said:


> On a related note, the Kogan prospectus forecasts NPAT of $400k (yes k, not m) this year on revenue of ~$200m. Fear not however, FY17 is when the big bucks will start rolling in. EBITDA will rise 138% and NPAT will rise 600%. Revenue will rise at a pedestrian 19%...says the prospectus anyway. Apparently that makes it worth $140m.



Calculations are probably off-topic to SRF,  but the NPAT margin might be relevant.

400k increased by 600% is 2.4mil.   

200mil revenue increased by 19% is 238m.

NPAT margin  2.4/238 =  1.01%  

I think that pretty much shows why it is so hard to make a dime in these online only businesses.  You need so much bloody scale.  As you said it's all about eye balls,   which makes it hard because everyone else wants them too.

I remember reading that the online electronics market in Australia is about $2bil this year (not sure where this was from),  but that means they've already got over 10%.  I bet some of it isn't addressable to them either. 

Is there really much operating leverage in these kinds of businesses?  I can't see it.


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## So_Cynical (7 June 2016)

Ves said:


> I think that pretty much shows why it is so hard to make a dime in these online only businesses.  You need so much bloody scale.




What your selling comes into it, looking at graysonline, wine and scale, there are woolies, coles and grays at #3  daylight and the cellar door at #4, and is not scale good for pretty much every business.

Bought some Merrell shoes online yesterday and noticed that RCG was at the other end of the sale, suprised because i don't follow them and didn't know that they are the AU distributor for Merrell, with wine, shoes and clothing the brand and the availability of that brand plays a big part in the potential profitability.


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## McLovin (7 June 2016)

Ves said:


> Calculations are probably off-topic to SRF,  but the NPAT margin might be relevant.
> 
> 400k increased by 600% is 2.4mil.
> 
> ...




Yeah absolutely. Gross margin is 14.5% (compare JBH 21.7%). That doesn't leave much for anything. This biz is all about price. They can chirp on about algorithms, scale, lunar cycles, but no one is using Kogan if they're not bottom of the barrel cheap. And I don't think they'll ever get the scale of say Amazon (or even Costco) where they can run a successful uber low margin business, at least not in Australia. I've heard anecdotally that they're going to have a hard time with Dick Smith suppliers because they intend to only sell online. 





Ves said:


> I remember reading that the online electronics market in Australia is about $2bil this year (not sure where this was from),  but that means they've already got over 10%.  I bet some of it isn't addressable to them either.
> 
> Is there really much operating leverage in these kinds of businesses?  I can't see it.




And that 10% they've gotten was the easy 10%. Kogan is a smart bloke. If he didn't need to sell why would he? He's taken 10% of the market with no outside capital. So what's changed? If you ask me, the market is getting a lot more saturated than it was 5 or so years ago. That was easy runs. Whose in the better position JBH that can accept lower margins on online sales because of its b&m margins or Kogan that only has online and has to budget based on its 15% gpm.


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## Miner (7 June 2016)

I have  a vague recollection from a discussion with a friend that Motley Fool in their MDP bulletin made certain observation on SRF. Not sure if it was buy or sell. I am not a subscriber of MDP bulletin but of SA and DI bulletins.
When I go to Westfield shopping centres in Perth SRF owned products do not appear to be too encouraging for young generation there even on school holidays.
Do not hold
DYOR


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## Faramir (7 June 2016)

percytown said:


> how are you feeling about this stock now?




Hi Percytown

Sorry for not responding for over one year. I just didn't have the time to investigate nor to comment. I do not think SurfStitch is a Buy - even if I took a contrarian position. There are too many risks. I haven't tried to follow this stock. Being too busy but to my surprise, it does pop up in the news. Now it is in a trading halt. SurfStitch is not investment grade. It is not even speccy grade. Even though its all time low could say otherwise.

When one of the founding partner left - what did that tell the investment world?

Here is a chart - not for debate. Not here please. You can tell when the "big" news happened.


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## Faramir (7 June 2016)

I was a loyal a customer of SurfStitch. I am involved with Surfing, Spec Ski Paddling and general swimming. So I have brought two shorts recently when they had a 70% sale on. (One I was happy with, the other I thought, oh well, I got 70% off). If was my first purchase from SurfStitch in many years. I try to look after my stuff - always rinsing them in fresh water after use to prolong their life.

Most of my wear and tear stuff that I wear in the water like Wetsuits, rashies, paddle long pants, etc - I buy from the local shop. The guys there give me great service and we can chat about the local beaches and my endeavours of learning the ways of the surf and ocean. (Spec (surf) Ski paddling is very difficult and expensive.)

I still like SurfStitch, especially during Sales Time and I like their product range. Yet for something as specialised as Spec Ski paddling, I follow what my fellow clubbies wear. Last year, my wetsuit broke whilst surfing and my local shop repaired it free of charge.

I want to make a boast! I want to brag about something:

I AVOIDED A MASSIVE LOSS!

This thread shows how much interest I had in this stock. It showed how I wanted an emotional attachment to this stock. Yet, I kept telling myself that I have no money and thus never brought. Now I want to yell - I avoided this stock! Maybe I will regret saying this in the coming months or years but at least I can say it now. Buying between $1.10 and its high of nearly $2 would have made me look foolish.

Well done to anyone who can make money from any stock like SRF. I am just very relieved that I avoided this disaster and survived last weekend's storm that savaged the beaches.


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## McLovin (7 June 2016)

Faramir said:


> I was a loyal a customer of SurfStitch. I am involved with Surfing, Spec Ski Paddling and general swimming. So I have brought two shorts recently when they had a 70% sale on. (One I was happy with, the other I thought, oh well, I got 70% off). If was my first purchase from SurfStitch in many years. I try to look after my stuff - always rinsing them in fresh water after use to prolong their life.
> 
> Most of my wear and tear stuff that I wear in the water like Wetsuits, rashies, paddle long pants, etc - I buy from the local shop. The guys there give me great service and we can chat about the local beaches and my endeavours of learning the ways of the surf and ocean. (Spec (surf) Ski paddling is very difficult and expensive.)
> 
> ...




Well done Faramir. Knowing when to say "no", but when you think you can't possibly be wrong is one of the hardest things to do. Don't worry what happens to the stock over the next few months. Let your own judgement guide you. And besides, errors of omission are much easier to deal with than errors of commission, for me anyway!


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## ROE (7 June 2016)

A few online business and tech stock catch on the bandwagon last couple of years and
some of them are questionable investment grade.

When they talk about revenue, million of users and no sign of profit or erratic profit stay the hell away


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## ROE (7 June 2016)

McLovin said:


> On a related note, the Kogan prospectus forecasts NPAT of $400k (yes k, not m) this year on revenue of ~$200m. Fear not however, FY17 is when the big bucks will start rolling in. EBITDA will rise 138% and NPAT will rise 600%. Revenue will rise at a pedestrian 19%...says the prospectus anyway. Apparently that makes it worth $140m.




Got to jump on the bandwagon before the tide goes out another one to avoid
you outperform the market by doing nothing but avoid these business


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## galumay (8 June 2016)

Faramir said:


> I want to make a boast! I want to brag about something:




Its not boasting or bragging mate, its a fair observation.

One thing I do is write a decision journal, i do it online on a private forum, but you can do it on paper or whatever. As well as writing about the Companies I become a part owner of, i also write about ones I decided not too - and document the reasons for not purchasing and my predictions for the future of the business. 

Its interesting to look back and see if you were right for the right reasons, or right for a reason unrelated to your thinking at the time, or wrong, but your analysis was still correct, and finally if you were wrong, and you got it wrong!

I update my decision analysis infrequently and irregulary as well.

In this case some of your observations in earlier posts are stronger and more insightful than others you have made in the past - it seems to me you are growing a little in confidence about your processes for selecting companies to invest in which is a good thing!


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## Faramir (8 June 2016)

Thank you Ves. Thank you ROE.
Thank you Galumay.


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## Miner (12 June 2016)

Miner said:


> I have  a vague recollection from a discussion with a friend that Motley Fool in their MDP bulletin made certain observation on SRF. Not sure if it was buy or sell. I am not a subscriber of MDP bulletin but of SA and DI bulletins.
> When I go to Westfield shopping centres in Perth SRF owned products do not appear to be too encouraging for young generation there even on school holidays.
> Do not hold
> DYOR




folks this could be interesting.
motley fool advised its premium million dollar portfolio newsletter  customers paying some $0000 per year to buy SRF in February and called 11 june to sell it. SO SRF mis a sale now by motley. you could question what kind of long term recommendation this newsletter this journal provides to its customers.
Any way, do your research - i do not hold it. given the extract for information only.


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## Triathlete (12 June 2016)

Miner said:


> folks this could be interesting.
> motley fool advised its premium million dollar portfolio newsletter  customers paying some $0000 per year* to buy SRF in February and called 11 june to sell it*. SO SRF mis a sale now by motley. you could question what kind of long term recommendation this newsletter this journal provides to its customers.
> Any way, do your research - i do not hold it. given the extract for information only.





That is interesting.....I thought I would put up a chart to see if we could see anything significant forming on the chart around the time of their so called recommendation. Do you have what type of buy this was in their report?? because to me it was nothing more than speculative play.

It seems from a technical view that a double top had formed and confirmed week ending 11/12/2015 this is a bearish signal so if you held at the time you should have exited at the open on 14/12/2015 @ $1.87. So at least 6 weeks before their recommendation.

A double top will usually retrace in price between 150% to 250% from the high which is what eventually happened here.

I also looked at the fundamentals from stock doctor and came up with:

June 14    Early warning
Dec  14    Distress
Jun   15    Marginal
Dec   15   Marginal

Unless this was a speculative play you would have stayed away.


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## piggybank (12 June 2016)

Hi Triathlete,

Thanks for another great chart. 

However, over the years I was of the impression that a double top was confirmed when the price closed below the lowest point of the middle bar, candlestick, etc of the pattern. 

On your charts the middle part of the double top pattern, the lowest point was the price $1.375 (week ending 9th Oct 2015). 

The price fell through and closed below this price between 22 - 26th February (this year) that would confirm a double top, so I thought.

Would you be as kind as to explain how you confirmed a double top from the bar ending on he 11th Dec 2015 please? or have I misread the chart?

Cheers
PB


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## Triathlete (12 June 2016)

piggybank said:


> Hi Triathlete,
> 
> Thanks for another great chart.
> 
> ...




Hi PB,

Industry experts suggest that a double top is not confirmed until the low between the tops is broken, but this can lead to *a lot of lost profit*. It is recommended that once the second peak is confirmed then the double top is confirmed and you should exit your position.

Also remember that there is usually an exit well before a double top is formed so if you are not out already you better be at the earliest of the double top confirmation as I have mentioned.

An important point to remember is that the second peak for a double top is only confirmed when you see a down move, therefore a down bar must be present which is what I have on the chart. I also like to see the tops no more than 3% difference in price.


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## Boggo (23 May 2017)

No comment required.
http://www.smh.com.au/business/reta...tion-over-share-wipe-out-20170522-gwatsh.html

Weekly chart


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