Mike Sonand drafted to patch up struggling SurfStitch

The new boss of online retailer SurfStitch, Mike Sonand, has delivered a damning assessment of previous management.

The new boss of SurfStitch, Mike Sonand, in Sydney yesterday. Picture: Jane Dempster

The new boss of disaster-prone online retailer SurfStitch, Mike Sonand, has delivered a damning assessment of the company’s previous management, declaring a frenetic pace of capital raisings and acquisitions since its 2014 float distracted the group to create a culture lacking in accountability and an “unhealthy’’ focus on revenue growth at any price.

Worse still, the sudden departure of SurfStitch co-founder and previous CEO Justin Cameron left the group “bewildered, and somewhat lost” while a heavy reliance on product discounting turned off shoppers.

However, this would end under his watch as he vowed yesterday to return the business back to being a true retailer.

Mr Sonand, a global retail veteran, is determined to revive SurfStitch from its aimless state where “our hands were off the tiller and we were in rough seas’’.

“This is why we find ourselves where we are today. It’s not a good look; it’s not great,’’ Mr Sonand told The Australian yesterday.

Those rough seas crashed into SurfStitch yesterday, when the retailer came out of a two-day trading halt to issue its third profit warning this year, informing long-suffering shareholders the online surfwear and action sports retailer had ripped up its profit forecast for this year.

It said it now expected revenue to fall $20.3 million short of earlier expectations due to an issue with the treatment of a licensing deal, resulting in its earnings forecast for the 2016 financial year shifting from a $2m-$3m profit to an expectation of a loss of $17.3m-$18.3m.

Shares in SurfStitch were battered, slumping nearly 40 per cent to a low of 25c before closing down 8.5c, or 21 per cent, to finish yesterday’s session at 32c. The collapse has stranded the stock a long way from its issue price of $1 at its December 2014 float.

It has also cast another cloud over a sector that has had more than its fair share of financial woes in recent years across legacy brands including Billabong and Quiksilver.

SurfStitch said in a statement that “recent information had come to hand” that would require further investigation into a contract signed with an unnamed third party and that in the meantime would require the termination of $20m in revenue for 2016.

Mr Sonand declined to further discuss the contract at the centre of the disappearing revenue, who that contract was with or what the nature of the “recent information’’ was.

An update is expected at the full-year results in August.

Mr Sonand accused former managers of failing to properly integrate the six acquisitions racked up by SurfStitch since its float. He said the retailer lacked accountability and was overly exposed to discounting.

“Three capital raisings, six acquisitions and one closure, and that was in less than 12 months,’’ Mr Sonand said when asked about SurfStitch’s hectic first year as a public company.

“And the failure to drive any operational improvements off our new acquisitions or properly integrate them.

“The pace was frenetic and created a lot of distraction, complexity and lack of accountability across the group.”

Mr Sonand said management was too focused on top-line growth, to the cost of profit.

“I accept it’s an e-commerce company and people value e-commerce companies on sales, and if it’s not growing by more than 30 per cent it’s not good,” he said. “I think that focus on top-line growth came at a significant cost.’’

Mr Sonand said the departure of “a very charismatic and visionary’’ Mr Cameron, who walked out of the company in March, left the business “bewildered’’.

He denied reports that Mr Cameron had approached the SurfStitch board asking to return as CEO and had been knocked back.

Mr Sonand led rival surfwear retailer Globe through a similar near-death experience in 2003 when the CEO suddenly quit and Mr Sonand was drafted in to revive the business’s sliding fortunes.