Outdoor clothing firm Blacks Leisure has identified a GBP2m (US$4.04m) deficit in the reported performance of its Sandcity boardwear subsidiary over the last two financial years years, leading to a revised group profit outlook.

A stock exchange statement by Blacks said the findings would hit group profit before tax by GBP1m during both the 2007/08 and 2008/09 fiscal years.

The discovery comes as part of the company's strategic review, actioned by newly-appointed chief executive Neil Gillis in December 2007.

Blacks' board has suspended the managing director of Sandcity, Darren Spurling, while investigations continue. Spurling is also a main board director of Blacks Leisure.

Sandcity distributes and retails the O'Neill Boardwear brand in the UK.

Discrepancies in management accounts emerged as Blacks looks into merging Sandcity with its Freespirit boardwear operation to reduce operating costs of its overall boardwear businesses.

Furthermore, Blacks today (18 March) announced plans to consult with Sandcity employees a proposal to close its headquarters and distribution centre in Washington, Tyne & Wear, and merge the business with its Freespirit operation in Northampton.

Blacks swung to a GBP0.6m (US$1.23m) loss in the first-half of the year last October, from a profit of GBP51,000 in the prior year period, having cut prices to clear stock.