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First strike for struggling SurfStitch

AAP logoAAP 16/11/2016 Ethan James

Embattled online clothing retailer Surfstitch has suffered a first strike, with a significant shareholder vote against adopting the company's remuneration report.

At Wednesday's annual general meeting, 31 per cent of shareholders voted against the corporate pay package, setting up a potential board spill if the company incurs a second strike next year.

The strike - which happens if more than a quarter of shareholder votes oppose adopting the remuneration report - was incurred on the 2015/16 report that shows new chief executive, Mike Sonand, received $76,607 for his first month in charge after taking up his post in June amidst a year of management shuffling.

Co-founder and CEO Justin Cameron made a surprise exit from Surfstitch in March, 2016 and was replaced temporarily by co-founder Lex Pedersen prior to Sonand's arrival.

The AGM vote followed SurfStitch forecasting an even sharper decline in operating cash flow because of legal costs.

It has warned a decline in cash from operations in the 2016/17 financial year is set to blow out to $9 million to $10 million from its previous forecast of $6 million to $7 million.

Legal costs are the main reason for the sharper than expected decline in cash flow, with Surfstitch facing legal action from Coastalwatch, which failed with a $55 million takeover bid earlier this month, and Crown Financial over a content sharing deal.

The corporate watchdog is also investigating the contracts between the companies.

Mr Sonand also said SurfStitch had been forced to aggressively discount old stock and faced a challenging market, particularly in North America, because of heaving discounting by physical and online competitors.

SurfStitch made a net loss of $155 million in 2015/16 as it invested heavily in business changes and failed to achieve the strong sales growth it pursued.

Mr Sonand told the AGM they would continue to focus on surf, skate and snow gear, but must adapt to a changing retail environment.

"Our challenge and goal must be to remain relevant to the youth demographic as their interests evolve and as technology changes their purchasing behaviour and profile," he said.

Surfstitch shares, which hit a record low of 10.5 cents in August, closed steady at 18.5 cents on Wednesday.

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