SurfStitch is under pressure after reporting a loss of 154.7 million Australian dollars (€104.5m-$117.8m) for its continuing operations for the year ended June 30, up sharply from the previous year's loss of A$17.6 million, despite registering an increase of 18.2 percent in revenues to A$235.6 million which was mainly due to acquisitions.
SurfStitch emphasized that the A$155.4 million loss includes a non?cash impairment of goodwill, intangibles, plant, property and equipment and aged inventory amounting to A$99.3 million (€68.0m-$76.7m). Underlying operating earnings before amortization showed a loss of A$18.9 million (€12.8m-$14.4m) compared with a profit of A$4.1 million in the year-ago period.
The annual loss marks a reversal of fortunes for the international e-commerce retailer based in Australia, which was valued at A$511 million (€349.7m-$394.9m) at the end of the previous financial year, with stock prices peaking at A$2.09 per share. In February 2016, the company even posted its first profits. But in March, the company faced hurdles, with Justin Cameron, co-founder of the company, unexpectedly resigning as chief executive. And this week, SurfStitch's stock price plummeted to an all-time low of A$0.10 per share after the company posted its latest results.
The group said the results “are clearly very disappointing,” adding that it has been through a period of rapid expansion, which has involved significant management time in effecting the relevant acquisitions and two major capital increases. It said that its focus on raising market share, combined with difficult trading conditions, particularly in North America, had a major impact on retailing margins and overall results. Evidently, the surfwear market has been particularly challenging in the U.S., where Pacific Sunwear is only just now emerging from bankruptcy proceedings, falling under the ownership of a new investor
Surfstitch experienced healthy growth in Europe, with Surfdome's sales jumping by 18.0 percent to A$101 million (€69.1m-$78.1m), or by 11.0 percent in constant currencies. However, the regional gross margin was off by 6.0 percentage points to 40.0 percent. Surfdome reduced its headcount by 25 percent in the past year.
This growth was offset by disappointing results in North America, where retail sales dropped by 12.0 percent or by 21.0 percent in constant currencies to A$25.2 million (€17.2m-$19.4m). In addition, the gross margin fell by 16.0 percentage points to 28.0 percent in that region. In Asia-Pacific, retail sales inched up by 3.0 percent - with or without the effects of currency fluctuations - to A$83.6 percent (€57.2m-$64.6m). The gross margin lost 5.0 percentage points to 41.0 percent.
Overall, the group's gross margin fell by 6.0 percentage points to 40.0 percent. SurfStitch said it is now working on a stabilization plan for the business with a focus on cash flow, led by its new CEO, Mike Sonand, who took over the reins in June. The plan also calls for a focus on increasing traffic and customer conversion while concentrating on key strengths and businesses. As a first move, the company will sell off Surf Hardware International and Gorilla. It has also appointed Deloitte Finance Advisory to identify further opportunities to divest business assets. For the year ahead, the group forecasts single-digit sales growth and a net loss of A$2 million (€1.4m-$1.5m) to A$3 million.
