Why is this ASX stock crashing 60% today?

KMD Brands Ltd (ASX: KMD) shares are having a day to forget after returning from their suspension.

At the time of writing, the ASX stock is down over 60% to 6 cents.

Why is this ASX stock crashing?

Today’s decline has been driven by the Rip Curl and Kathmandu owner raising funds to help recapitalise.

According to the release, the ASX stock has successfully completed its $6.8 million underwritten placement and the institutional component of its fully underwritten entitlement offer.

The struggling retailer revealed that the placement and institutional entitlement offer raised combined gross proceeds of approximately $44.2 million. It notes that the placement was well supported by a number of existing and new institutional investors, raising the $6.8 million at the offer price of NZ$0.06 per new share.

KMD’s eligible institutional shareholders elected to take up approximately 79% of the entitlements available under the institutional entitlement offer.

Furthermore, all of the entitlements not taken up by eligible institutional shareholders and entitlements of ineligible institutional shareholders were sold in the institutional shortfall bookbuild at the same price as the offer price.

The retail component of the entitlement offer will open next week and is expected to raise gross proceeds of $21.1 million.

KMD’s CEO and managing director, Brent Scrimshaw, said:

We are pleased with the support for the institutional component of the equity raising. The raise will strengthen KMD’s balance sheet and position us to continue executing our Next Level transformation. We now look forward to inviting our retail shareholders to participate in the equity raising.

Results update

The ASX stock also released its half-year results along with its equity raising.

It posted a 7.3% increase in sales to $505.4 million but a statutory net loss of $13.1 million and an underlying loss of $11.5 million.

Unsurprisingly, there was no dividend declared for the first half.

Nevertheless, Scrimshaw was pleased with the performance of the company. He said:

Since launching our Next Level strategy, we have accelerated the pace and quality of execution and returned each of our brands to growth in a short timeframe. Strong early progress has been made against our key initiatives, giving us further conviction in our potential.

We’re particularly encouraged by the improved performance of Kathmandu, which has delivered double-digit same store sales growth for the first time in over two years. It’s also pleasing to see consumers responding positively to our accelerated product freshness, flow and assortment, along with a renewed focus on innovation. While Rip Curl has navigated more volatile global trading conditions, we remain confident that the brand’s repositioning will drive long-term growth and youthful energy, connected to the next generation of core surf and beach consumers.

The post Why is this ASX stock crashing 60% today? appeared first on The Motley Fool Australia.

More reading

• KMD Brands shareholders to be stung with a hugely discounted capital raise
• What’s going on with KMD Brands shares?
• Trading halt, delayed results, and a capital raise: Why this ASX retail stock is under pressure
• Which ASX retail company just rejected a deal to buy its Rip Curl stores?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.