Blacks Leisure said it had discovered that accounts relating to Sandcity, the subsidiary which distributes and retails the O'Neill brand in the UK, had been overstated to the tune of £2 million over the last two financial years.
It said that 50% of this, or £1m, related to the year ended February 2008. As a result, the group's profit before tax for the year 2007/08 and 2008/09 is likely to be £1m below market estimates.
Blacks Leisure has suspended Sandcity managing director Darren Spurling while it investigates the accounting discrepancies. It has asked its auditors BDO Stoy Hayward to assist in investigating the problem. Spurling is also a main board director at Blacks Leisure.
The outdoor specialist discovered the problems with the accounts after it kicked of a review to assess the feasibility of merging Sandcity with its Freespirit retail business which would reduce operating costs at the boardwear business.
Blacks Leisure stressed that the recovery plan for the group was unaffected by the developments and said the board remained confident that the medium term prospects for the business remained healthy. It added that trading continued in line with management expectations.