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SurfStitch to close North American arm

Surfing e-retailer Surfstitch yesterday announced it will close its North American arm, as it expects losses to double this financial year.

Surfstitch now expects EBITDA loss to be in the range of $10.5 million to $11.5 million, up from the range of $5 million to $6.5 million it previously advised, due to the weak apparel and footwear market, particularly in the UK.

The news was followed almost immediately by the announcement of a shareholder class action against the company, which has slashed its market capitalisation by $500 million and sent share values plummeting by 85 per cent.

“The work to transform our business model through improved operational capabilities, enriched customer engagement and a reduced cost base, is going well,” Mike Sonand, CEO of Surfstitch, said.

“However, the retail environment has made it difficult to deliver the planned sales and gross margin improvements as quickly as we would like, resulting in the revised forecast for the group’s underlying EBITDA.”

Sonand said that the recent re-platform of the SurfStitch Australia business to a multi-brand and multi-region technology had been successful and will enable the company to develop more sophisticated techniques for consumer engagement.

“Our new platform in Australia is a responsive solution that materially improves functionality, reduces the cost of operating the site and will improve customer experience,” he said.

“Its core pillar is mobile first, which aligns with our strategy of optimising customer engagement.”

Surfstitch is also closing the US arm of its business, winding down its North American operational infrastructure by January 2018, as it expects the region to continue to be unprofitable for the foreseeable future.

The company’s overseas e-commerce platform, Swell, will be managed from Australia, Sonand said.

“The new technology platform we have implemented in Australia will enable the Swell site to operate in North America whilst being serviced and managed by our teams in Australia.

“These measures will provide for a greater focus on our two largest markets, Australia and the UK, and will materially reduce our operating costs, while still maintaining a consumer presence in North America.”

Sam Weiss, the e-retailer’s strategy chairman, said the company’s board was focused  on delivering a business that is cash flow positive as soon as possible and maximising value for shareholders, including the consideration of the sale of some or all of the businesses assets.

“Notwithstanding the difficult business environment and the operational and external challenges facing SurfStitch, the board, the management and the global SurfStitch team are highly engaged and enthusiastic about the opportunity to deliver on the significant potential of our business.”

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