Men wearing face masks walk past a Gap store at a shopping area, as the country is hit by an outbreak of the new coronavirus, in Beijing, China February 7, 2020.
Jason Lee | Reuters
Gap Inc. said Thursday that its existing cash and the cash it expects to bring in might not be enough to sufficiently fund its operations, as its stores remain temporarily shut because of the coronavirus pandemic.
The apparel company said in a securities filing that it must take further actions to find liquidity over the next 12 months, such as additional job cuts and new debt financing.
It added that beginning in April, it stopped paying rent on its temporarily shuttered stores, which amounts to roughly $115 million in monthly expenses in North America.
Gap shares were down about 7% in premarket trading Thursday. Its stock has tumbled nearly 60% this year.
The retailer, which also operates Banana Republic, Old Navy and Athleta, said it is currently negotiating with its landlords to either defer rent payments or agree on an abatement. It has also tried to modify the terms of its leases going forward. In some instances, it said it will be terminating leases and permanently closing stores.
However, Gap cautioned: “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.”
“Although we believe that strong legal grounds exist to support our claim that we are not obligated to pay rent for the stores that have been closed … there can be no assurance that such arguments will succeed.”
Gap also cautioned that its profit margins could erode as it is forced to use steep discounts to try to sell through merchandise.
As of Feb. 1, Gap said its cash, cash equivalents and short-term investments totaled $1.7 billion.
By the end of its fiscal quarter ending May 2, it said it expects to have $750 million to $850 million of cash and cash equivalents, including its short-term investments.
“We expect the Covid-19 pandemic to have a material adverse impact on our business and financial performance,” the filing said. “The extent of the impact … will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted.”