Gap Inc. said Thursday that it expects the COVID-19 pandemic to have a material adverse impact on its business and financial performance.
In a regulatory filing, the apparel retailer warned that its existing cash and cash expected to be generated from operations may not be sufficient to fund its operations.
The company said it will need to take further actions to both preserve existing liquidity and seek additional sources of liquidity, beyond its currently available cash and credit facilities within the next 12 months.
Gap expects these additional actions to include some combination of new debt financing or other short-term credit facilities, further deferring capital expenditures, and additional job cuts.
Beginning in April 2020, Gap has suspended rent payments under the leases for its stores in North America, which have been closed due to the COVID-19 pandemic. The company noted that these rent payments amount to about $115 million per month.
Gap is currently in talks with the counterparties under those leases to defer or abate the applicable rent during the store closure period. However, the company noted that if it is unable to renegotiate and modify lease terms, it could be deemed to be in default.
Gap also noted that it has drawn down its entire $500 million revolving credit facility.
As of February 1, 2020, the company’s cash, cash equivalents, and short-term investments were $1.7 billion. At the end of the fiscal quarter ending May 2, 2020, the company currently expects to have $750 million to $850 million of cash and cash equivalents, inclusive of short-term investments.
Gap warned that if its sales did not meet expectations, too much inventory may cause excessive markdowns and, therefore, lower-than-planned margins.
In late March, Gap withdrew its financial outlook for fiscal 2020 and suspended stock repurchases as well as the regular quarterly cash dividends for the remainder of fiscal 2020.
The retailer has also furloughed the majority of its store teams in the U.S. and Canada, reduced headcount across its corporate functions and temporarily reduced pay for its entire leadership team.
In addition to its namesake brand, Gap’s portfolio includes Banana Republic, Old Navy and Athleta brands.
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