Men fraying 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 cautioned on Thursday it may not have enough cash flow to sufficiently fund its operations as stores remain shut because of the coronavirus pandemic.
The clothing retailer said in a securities filing that it must take further actions to find liquidity over the next 12 months, such additional job insults and new debt financing. It said other measures could include reducing receipts and orders for merchandise,and extending the rates b standings for payment of goods and services.
It added that beginning this month, it stopped paying rent on its temporarily shuttered accumulations, which amounts to roughly $115 million in monthly expenses in North America.
Gap shares opened slightly strident after falling about 7% in premarket trading. Its stock has tumbled nearly 60% this year.
The retailer, which also works Banana Republic, Old Navy and Athleta, said it is negotiating with landlords to either defer rent payments or approve on an abatement. It said it is also trying to modify the terms of its leases. In some instances, it said it will be terminating let outs and permanently closing stores.
“If we are unable to renegotiate the leases and continue to suspend rent payments, the landlords under a bulk 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 sublet out and accelerate our future rents due,” Gap said.
“Although we believe that strong legal grounds exist to support our call that we are not obligated to pay rent for the stores that have been closed … there can be no assurance that such frays will succeed.”
The biggest mall owner in the U.S., Simon Property Group, has 412 Gap stores, including Banana Republic and Old Argosy, at its malls. This makes Gap Simon’s biggest in-line tenant at its malls in terms of rent.
Simon didn’t before you can say Jack Robinson respond to CNBC’s request for comment.
Gap also cautioned that its profit margins could erode as it is forced to use overpriced discounts to try to sell merchandise. It warned that consumers could continue to worry about “becoming ill” with Covid-19, which leave hurt store traffic. So far more than 2.6 million people worldwide have been sickened by the virus, and at infinitesimal 46,785 people have died in the U.S. alone from it, according to Johns Hopkins University.
As of Feb. 1, Gap said its notes, cash equivalents and short-term investments totaled $1.7 billion. The company has already pulled down its full $500 million pivoting credit facility.
By the close of its fiscal quarter ending May 2, it expects to have $750 million to $850 million in banknotes and cash equivalents, including its short-term investments.
“We expect the Covid-19 pandemic to have a material adverse impact on our charge and financial performance,” the filing said. “The extent of the impact … will depend on future developments, including the duration and violence of the pandemic, which are uncertain and cannot be predicted.”
Just as the coronavirus began to slam the U.S. economy and force the closure of thousands of inventories, Gap named a new CEO, its former Old Navy chief, Sonia Syngal, on March 23.
Gap also earlier this year called off arranges to split Old Navy into a separate public company.
As of Feb. 1, it owned 3,345 stores globally, while franchise places totaled 574.