SURFSTITCH THE BIG ONLINE GROWTH STORY

Written on the 27 August 2015 by Nick Nichols

SURFSTITCH THE BIG ONLINE GROWTH STORY

SURFSTITCH (ASX:SRF) has emerged as the big growth story in the retail actions sports sector, with the company bettering prospectus forecasts and banking on double-digit gains in the year ahead.

The former Billabong (ASX:BBG) subsidiary, which broke free last year and floated on the ASX in December, has posted a $4.1 million net profit for the year to June 30.

The Burleigh-based online retailer, which secured major media acquisitions during the year to execute a new strategy of engagement with its target market of 15 to 30-year-olds, has boosted revenue 30 per cent to $199.4 million.

Gross profit surged 37 per cent to $91.6 million, up from a forecast $89.7 million.

CEO Justin Cameron has described the company as a growth story that will continue to deliver double-digit gains in earnings through both acquisitions and efficiency measures.

"The company aims to become the dominant and undisputed global leader in action sports and youth lifestyle," says Cameron.

SurfStitch currently has 6.2 million unique monthly users and three million customers on its database.

Growth accelerated in all of the group's key regions, with European and US operations benefiting from restructuring.

Sales in the Asia-Pacific region surged 44 per cent to $82.9 million, despite perceived challenges in the Australian retail sector, while in Europe they rose 22 per cent to $87.3 million and in the US 17 per cent to $21.9 million.

Gross profit margins in the US also jumped strongly in the second half as the company restructured its product mix following the acquisition of Swell from Billabong.

SurfStitch currently operates in Europe through Surfdome, acquired last year, and in the US through Swell.

"We are now a very well diversified portfolio of e-commerce and content platform spread equally throughout the continent of the world and expect to see continued strong performance in those regions," says Cameron.

EBITDA rose to $7.7 million, up from a $3.4 million loss in FY14, when the company was still under Billabong's ownership.

The acquisitions of online surf forecaster Magicseaweed and online surf publisher Stab Magazine are aimed at delivering on an overall strategy for SurfStitch to engage directly with its target market. Cameron says sales through these platforms are on average 40 per cent higher than from other channels.

The changing face of retail customer engagement has seen transactions from mobile phones rise to 50 per cent, a trend Cameron sees continuing.

"It's no secret today that the significant shifts in consumer engagement which has accelerated in the past 12 months will continue into the future," he says.

"We are engaging millennials with their preferred digital medium and we're capturing their wallets by offering products that appeal to their interests."

Cameron says plans also are afoot to bring the company's multiple brands under the one banner.

"To accelerate growth we are making a strategic shift to a single e-commerce brand and that e-commerce brand will be a Swell brand," he says.

The company is forecasting strong double-digit revenue growth in FY16, with EBITDA expected to be particularly strong in the second half of this financial year.

SurfStitch is "comfortably" forecasting EBITDA of between $15 million and $18 million this financial year, representing a doubling of the FY15 result.

The company is not paying a dividend, preferring instead to invest profits into new growth opportunities.

Meanwhile, Cameron sees benefits for the group's Australian sales through the introduction in 2017 of GST to many online purchases that are currently exempt by the $1000 threshold.

"(It would) be a strong positive for our domestic business by reducing international competition into the Australian marketplace," Cameron says. "I think it has less relevance now given where the Australian dollar is trading (which) has reduced the competitive tensions from overseas."


Author: Nick Nichols

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