Online surfing goods retailer, Surfstitch, has warned it may face further declines in operating cash flow in the 2016/17 financial year due to legal costs, a backlog of unsold stock and the fallout with Coastalwatch around a content sharing deal that turned sour.
Sam Weiss, company chair, admitted during the annual meeting with shareholders the company is leaking cash faster than they have previously thought and has warned a decline in cash from operations is set to blow out from the previous forecast of $6-$7 million to $9-$10 million.
“Since the FY17 outlook was provided to the market in August, there have been additional pressures on the company’s cash position, caused principally by legal costs associated with the ASIC request for information and investigation, and on-going litigation against the company by Coastalwatch and other members of the Crown group, and the additional cash requirements of our payment gateway provider in Europe,” Weiss said.
“As a result of these additional demands on cash, the forecast decline in cash from operations for FY17 has been increased from a range of $6-$7 million to a range of $9-$10 million.”
In 2015/16, Surfstitch reported a net loss of $155 million as it invested heavily in changes to the business but failed to achieve the strong sales growth it anticipated.
Mike Sonand, company chief executive who was appointed in May, said 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,” Sonand said.
The company is now expecting further decline in cash flow due to legal costs, with Surfstitch facing legal action from Coastalwatch, who failed with a $55 million takeover bid earlier this month, and Crown Financial over a content sharing deal.
The contracts between the companies are also being investigated by the corporate watchdog.
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