Gap Outlines Action Plan To Deal With Coronavirus Crisis

The impacts of the Coronavirus pandemic, which has led to a death toll of more than 18,000, has dealt a huge blow to the retail sector. Major companies in the sector have become vulnerable with forced store closures, which have not only hurt earnings views but also put pressure on their financials.

In parity with the various efforts of retailers to safeguard themselves, Gap Inc. (NYSE:GPS) has come up with a plan to improve financial flexibility and liquidity. The company is looking to strengthen its balance sheet by fully drawing upon its $500-million revolving credit facility. Given the unprecedented situation ahead, it has also decided to defer the payout of its previously announced dividend of 24.25 cents per share for first-quarter fiscal 2020. The dividend was to be paid out on or after Apr 28, 2020, with a record date of Apr 7.

Moreover, the company has suspended paying dividends through the rest of fiscal 2020 due to the likely impacts the coronavirus outbreak on its performance. On its fourth-quarter fiscal 2019 earnings call, it suspended its share repurchase program for fiscal 2020.

The company also reduced its planned capital expenditure for fiscal 2020 by $300 million. Management has previously targeted capital spending of $600 million for fiscal 2020. Additionally, it is assessing opportunities to reduce all operating expenses to cut spending. Moreover, it will realign the inventory to match the expected sales trends.

In another development, Gap has offered to leverage its partners to make scrubs and masks for healthcare workers and gowns for patients to support the government to contain the virus spread.

On its Mar 18 press release, the company temporarily closed all Old Navy, Banana Republic, Gap, Athleta, Janie and Jack, and Intermix stores in North America for two weeks. It also stated that it will continue to make payments alongside offering benefits to workers employed for the above-mentioned period. The company also withdrew the guidance provided on Mar 12 and expects to re-issue forecasts after assessing the situation on its May 2020 conference call. Prior to this, it had announced a reduction in store operating hours across the United States and Canada for a temporary period from Mar 16.

On its last earnings call, management had projected that comps and net sales for fiscal 2020 will decline in low-single digits. Further, the company had envisioned adjusted earnings per share of $1.80-$1.92.

Other retailers that have temporarily closed stores and pulled back their guidance amid the coronavirus outbreak are Kohl’s Corporation (NYSE:KSS) , Abercrombie & Fitch (NYSE:ANF) , Nordstrom (NYSE:JWN) and American Eagle Outfitters (NYSE:AEO), to name a few.

We note that shares of Gap have plunged 52.2% year to date compared with the industry’s decline of 45.3%. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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