SurfStitch dumps its surfboard maker

SurfStitch has taken another step in overhauling its ailing retail operations with the sale of a business that makes surfboards and surfing equipment for $17 million.

Chairman Sam Weiss said the sale of Surf Hardware International, which was profitable, is another step in the group's renewal process.

"Whilst SHI is a sound business, operated by a passionate team with an outstanding knowledge of their category, it is appropriate to free up funds that are better utilised in our e-commerce businesses," he said.

Chief executive Mike Sonand said SHI was not a strategic fit and the sale is a good outcome for Surfstitch.

The sale to investment group Gowing Bros comes 13 months after SurfStitch splashed out $23.7 million on SHI, which owns four popular brands - FCS, Gorilla, Hydro and Softech.

At the time of the deal, SurfStitch said SHI's product range would give the company greater exposure to the action sports hard goods market, one of the group's fastest growing categories.

Mr Weiss and Mr Sonand joined the company in mid-2016 following a tumultuous period that included a raft of profit warnings and a sharp fall in the value of Surfstitch shares.

As a result of the sale of SHI, SurfStitch is now forecasting a bigger than expected underlying loss of $4 million to $5 million.

The group had previously forecast an annual underlying loss of about $2 million to $3 million, which included SHI's forecast earnings of about $2.2 million for the seven months ended June 30, 2017.

SurfStitch expects its cash outlook to "materially improve" this financial year as a result of the sale.

The company also said it has filed a defence and counterclaims in the District Court of Queensland against Coastalwatch, which is suing Surfstitch over a fallout around a content sharing deal.

SurfStitch shares were up 1.5 cents at 18 cents at 1450 AEDT, well off their record high of $1.98 in November 2015.