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SurfStitch delivers “very disappointing” results

Online sportswear retailer SurfStitch has widened its full-year net loss by over 200 per cent to $155.3 million, following a year of acquisitions and the departure of co-founder and chief executive Justin Cameron.

The company reported, however, revenue rose 143 per cent to $237.9 million in the 12 months to June 30.

Retail sales saw a seven per cent increase (three per cent in constant currency terms) mainly from growth in Europe. Underlying earnings before interest, tax, depreciation and amortisation, excluding share based payments, acquisition related costs and impairment charges, saw a loss of $18.8 million.

As part of the ongoing strategic review of the company’s assets, business units and other investments, the retailer booked a non-cash impairment of goodwill, intangibles, plant, property and equipment and aged inventory totalling $99.3 million. The impact of these impairments was reflected in the statutory EBITDA loss for the period of $139.1 million.

“The results are clearly very disappointing,” said Mike Sonand, SurfStitch CEO.

“The SurfStitch Group is fundamentally a great business, but the company has been through a period of rapid expansion, which has involved significant management time in effecting the relevant acquisitions and two major capital raisings,” Sonand said.

He said a focus on increasing market share, combined with difficult trading conditions had a major impact on retailing margins and the overall results.

He also stated the accelerated roll out of the company’s e-commerce platform, planned global re-branding and other initiatives had an impact on the company’s expenses and cash flow.

“The number one priority on my appointment was to implement a stabilisation plan with a key focus that the business has better control of its cash flow,” Sonand said.

The company’s plan includes a new executive team; a restructure of its North American operations, reducing the workforce by over 65 per cent; reducing the UK workforce by 25 per cent; and accelerating a brand rationalisation program, among others.

Sonand said forecast spending has reduced, their cash position has stabilised and they have materially improved their working capital.

“We’ve strategically reduced the number of brands we offer, reduced inventories in line with our retail plan and are on track to deliver an increase in our gross margins,” he said.

For FY17, Sonand said they are forecasting single digit sales growth and an underlying EBITDA loss of $2 million to $3 million representing a material improvement on FY16 EBITDA loss. Cash from operations is forecast to decline by $6 million to $7 million for the year, a reflection of the underlying loss and planned capital investments.

SurfStitch will not pay a final dividend.

This story first appeared on sister site, Inside Retail Australia.

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