SurfStitch sells off equipment brand at a loss
Struggling online clothing retailer SurfStitch has sold off Surf Hardware International (SHI) to a subsidiary of investment company, Gowing Bros, in a move intended to satisfy shareholders.
SurfStitch paid $23.7 million in cash for the surf equipment and accessories brand in November 2015. The e-retailer completed the sale of SHI today for $17 million in cash.
Commenting on the decision, SurfStitch Group chairman Sam Weiss said the sale was a strategic move to allow the company to focus on its core business, e-commerce retailing.
“The sale is another step in the Group’s renewal process. Whilst SHI is a sound business, operated by a passionate team with an outstanding knowledge of their category, it is appropriate to free up funds that are better utilised in our e-commerce business.”
SurfStitch CEO Mike Sonand said that while SHI was profitable, it was not a strategic fit and that the sale is a good outcome for the company.
At the time SurfStitch acquired SHI, however, it said the brand aligned with its core objective to create an environment capable of capturing and influencing customers at all points of the surf and action sports lifestyle cycle.
“SHI’s products engage with all major SurfStitch Group stakeholders throughout the business model, creating a highly beneficial and virtuous cycle,” the company stated in 2015.
But times have changed since then. The online fashion retailer made a net loss of $155 million in FY2016 as it invested heavily in business changes and failed to achieve the strong sales growth it pursued.
SurfStitch’s FY17 outlook of an underlying EBITDA loss of $2m to $3m, included SHI’s forecast earnings of approximately $2.2m for the seven months ended June 2017.
As a direct result of the sale of SHI, the company’s underlying EBITDA for FY2017 is now expected to be an underlying EBITDA loss of $4m to $5m excluding any impairment charge arising from this transaction.