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Sephora lost $6 million in FY19, and Covid-19 has made it worse

Beauty chain Sephora saw a disastrous result for the year ending 31 December 2019, suffering a loss before tax of $6.5 million largely off the back of adopting new accounting standards.

According to documents filed with ASIC last week, this is compared to a profit before tax of $6.2 million the year prior.

Sephora’s directors also stated they received offers of financial support from parent company LVMH should they need it, but that for the time being the business is trading as a going concern.

The major change in profitability came from the adoption of the AASB 16 accounting standard, which introduced new and amended requirements for how businesses recognise assets and liabilities.

And, with the onset of Covid-19 during the following FY20, the business isn’t expecting to recoup these losses any time soon.

Sephora Australia’s directors have been monitoring the situation and guiding the business through the pandemic, but said they had relied on JobKeeper and rental abatements to reduce costs and manage cashflow during the 2020 financial year.

And with the amount of support granted by JobKeeper changing at the end of the 2020 calendar year, dropping to $1000 a fortnight per eligible worker, Sephora’s support will continue to thin.

“The forecast economic decline is expected to result in lower levels of business activity in the near term, which would negatively impact Sephora Australia’s trading revenue and operations,” the business wrote in its financial statement.

“As a result, there is a potential that the lower levels of forecast activity may impact the future recoverability of the company’s assets, including debtors and inventory.”

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