SurfStitch wiped out by impairments as losses blow out

Shares in the online surfwear retailer have plummeted 45pc after the company posted a loss of more than $150m.

New SurfStitch CEO Mike Sonand.

Shares in the online surfwear retailer SurfStitch have plummeted almost 45 per cent after the company posted a loss of more than $150 million as impairments and sinking margins put severe pressure on its bottom line.

The group (SRF) shed more than $30m in market value this morning as it flagged asset sales, including a plan to put a subsidiary it bought just nine months ago back on the block.

The result came after a series of guidance downgrades from the embattled group over the past year, with investors also left stunned by the sudden departure of co-founder, and then chief executive, Justin Cameron in March.

In the year to June 30, SurfStitch reported a net loss of $154.7m despite booking a 7 per cent lift in retail sales.

The result was adversely impacted by retail margins tumbling from 46 per cent to 39 per cent and a non-cash impairment charge of $99.3m.

The writedowns related to inventory, plant and goodwill.

SurfStitch is also involved in a legal dispute relating to a licensing deal, which had seen the company downgrade revenue and profit expectations by $20.3m in June. That most recent downgrade led the group to put forward a guidance range for an underlying loss before interest, tax, depreciation and amortisation of $17.3m to $18.3m.

The group failed to achieve that depressed target, however, noting today its underlying EBITDA was a loss of $18.8m.

“The results are clearly very disappointing,” chief executive Mike Sonand, who was hired in June, said.

“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.

“A focus on increasing market share, combined with difficult trading conditions (particularly in North America) had a major impact on retailing margins and overall results.”

Mr Sonand said his plan is to swiftly stabilise cash flow, but he was unable to offer FY2017 projections in line with recent expectations for a return to profitability and positive cash flow.

Instead, the group is now tipping underlying EBITDA as a loss of $2m to $3m and a decline in cash from operations in a range of $6m-$7m.

“We have set demanding retail metrics to drive improved performance across the business,” Mr Sonand said.

“Forecast spending has reduced, the cash position has stabilised and we’ve materially improved our working capital.”

The group also detailed the results of the first stage of its strategic review, admitting the purchase of Surf Hardware International just nine months ago was a mistake.

The board has tapped Deloitte Finance Advisory to weigh divestment opportunities for SHI after the conclusion was reached it was “not a strategic fit”.

As of 10.37am (AEST) shares in SurfStitch has plunged just shy of 45 per cent to 12.8c a share.