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Surfstitch in a trough on heavy loss

AAP logoAAP 29/08/2016

Surfstitch shares have fallen to their lowest ever level after the company said it is expecting only single-digit sales growth in the current year after more than trebling its full-year net loss to $155.4 million.

Releasing its 2015/16 results, the online clothing and sports equipment retailer said revenue more than doubled to almost $238 million in the 12 months to June 30 .

However investors savaged the stock, wiping 12.5 cents or 55 per cent of its value away on Tuesday to drop the trading price to 10.5 cents and slashing the company's market capitalisation by more than $33 million to $29 million.

While the European market helped lift retail sales seven per cent this year, Surfstitch said its strategy of lowering margins on sales to increase its market share wiped 644 basis points of their profit margins.

Its earnings took an $139.1 hit from challenging trading conditions, particularly in North America, and it had to write down $99.3 million on goodwill, intangibles, property, plant and equipment and aged inventory after acquiring Garage Entertainment and Surf Hardware.

"The results are clearly very disappointing," chief executive Mike Sonand said.

"The number one priority on my appointment was to implement a stabilisation plan with a key focus that the business has better control of its cash flow.''

He said the company was forecasting another year of single digit sales growth and an underlying earnings loss of $2 million to $3 million.

Mr Sonand also said cash from operations was also forecast to fall by $6 million to $7 million in 2016/17.

"We have a robust and sustainable operating platform in place and we can therefore focus on the core areas that will return the business to sustainable and profitable growth," Mr Sonand said.

"We have set demanding retail metrics to drive improved performance across the business. Over the coming months we will better leverage our traditional and new channels to drive engagement and focus on creating a customer experience that generates loyalty and repeat business."

The poor 2015/16 results come in the same year as both the chairman Howard McDonald and chief executive Justin Cameron stepped down.

SURFSTICH'S HEAVY WIPEOUT FOR YEAR TO JUNE 30, 2016

* Net loss $155.4m, widening from $50.6m in 2014/15

* Revenue up 143pct to $237.9m

* No final or total dividend to be paid.

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