The Gap Inc. announced updates of the impact on its business relating to the coronavirus disease (COVID-19) pandemic, including that it has stopped paying rent and that some of its stores will be permanently closed.
“We are facing a period of uncertainty regarding the ongoing impact of the COVID-19 pandemic on both our projected customer demand and supply chain,” the company said in a release. “At this time, many of our company-owned and franchise stores globally have had to close or are operating with reduced store hours due to COVID-19 mitigation efforts. We expect material impacts from the evolving COVID-19 pandemic, including further spread in other regions, meaningful deterioration from current trends, and potential disruption from any supply chain impacts. During this challenging economic environment, we are focused on taking the necessary steps to strengthen our financial flexibility in the face of the unprecedented and continuing impact of COVID-19.”
Additional measures include:
- the draw-down of the entire $500 million available on our Revolving Credit Facility;
- withdrawing the full-year fiscal 2020 guidance issued on March 12, 2020;
- deferring the record and payment dates for our previously announced first quarter fiscal year 2020 dividend and suspending regular quarterly cash dividend for the remainder of fiscal year 2020;
- suspending stock repurchases;
- reducing planned capital expenditures by approximately $300 million in fiscal 2020;
- reviewing all operating expenses for opportunities to reduce spending;
- realigning inventory to expected sales trends based upon timing of stores reopening;
- furloughing the majority of our store teams in the United States and Canada, pausing pay but continuing to offer applicable benefits until stores are able to reopen;
- reducing headcount across our corporate functions around the world; and
- temporarily reducing pay for the entire Gap Inc. leadership team along with the Board of Directors
Gap is currently negotiating with the counterparties under leases to defer or abate the applicable rent (normally totalling $115 million per month in North America) during the store closure period.
“If we are unable to renegotiate the leases and continue to suspend rent payments, the landlords under a majority of the leases for our stores in the United States could allege that we are in default under the leases and attempt to terminate our lease and accelerate our future rents due thereunder,” the company continued. “Although we believe that strong legal grounds exist to support our claim that under common law we are not obligated to pay rent for the stores that have been closed because of the governmental and public health authority orders, mandates, guidelines and recommendations, there can be no assurance that such arguments will succeed and any dispute under these leases may result in litigation with the respective landlord, and any such dispute could be costly and have an uncertain outcome.”
