Gap Inc. Skips Rent Payments As Stores Remain Closed Because Of The Coronavirus Pandemic

With its North American stores closed because of the coronavirus pandemic, Gap Inc. (GPS) warned of financial uncertainty as it skipped rent payments and saw its cash flow dwindle.

The retailer, which operates, Gap, Banana Republic, and Old Navy stores, said in its Securities and Exchange Commission (SEC) filing, “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.”

Gap Inc. closed all of its U.S. stores in March because of the COVID-19 outbreaks and furloughed the majority of its store employees in the U.S. and Canada. The company has also reduced its headcount across its corporate offices worldwide. Pay was reduced for its entire leadership team as well as its board of directors.

The company has also drawn down the entire $500 million available through its revolving credit facility and suspended rent payments at the stores that have been closed because of the COVID-19 pandemic, starting in April, the SEC filing said.

“We are currently negotiating with the counterparties under those leases to defer or abate the applicable rent during the store closure period, to modify the terms (including rent) of our leases going forward after the stores reopen, or in certain instances to terminate the leases and permanently close some of the stores.”

The company currently expects to have $750 to $850 million in cash on hand, which Gap Inc. said may not be sufficient to fund its operations over the coming months. The company said it expects to take additional actions to improve its cash position during the coronavirus pandemic, including new debt financing or other short-term credit, deferring capital expenditures, further reducing headcount, reducing operating expenses, reducing orders for merchandise, and extending the payment of good and services.

“There can be no assurance that we will successfully complete these actions,” the company said. “There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impacts of the outbreak on our business, and the steps we may need to take to address those impacts, are highly uncertain and subject to change.”

Shares of Gap Inc. stock were up 1.76% as of 11:46 a.m. EDT on Thursday.