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Gap Suspends Dividend, Draws Down $500 Million Credit Line, and Withdraws Guidance Due to COVID-19

In a bid to conserve cash to survive the coronavirus pandemic, Gap Stores (NYSE: GPS) followed the lead of many other businesses by tapping its credit line, suspending its dividend, and pulling its full-year guidance.

President and CEO Sonia Syngal said the retailer started off 2020 in a financially strong position, "However, in this time of unprecedented disruption to the retail sector, we are proactively taking the prudent actions to further strengthen our financial liquidity and flexibility."

Image source: Gap Stores.

Hunkering down during the crisis

Despite the CEO's assurances to the contrary, Gap, which also owns the Old Navy and Banana Republic brands, was already a troubled retailer and had scrapped the spinoff of Old Navy prior to the coronavirus becoming a global pandemic to conserve resources. Now it is drawing down the entirety of its $500 million revolving credit facility as it continues to pay its employees through the crisis.

Gap also lowered by $300 million the capital expenditures it plans to make in 2020 and is examining all of its operating expenses to see where it can cut costs.

With all of its North American stores closed beginning last week, the retailer also pulled the full-year guidance it had issued and will not offer any updates. Gap had expected 2020 adjusted earnings would be in the range of $1.80 to $1.92 per share.

Gap is also using the opportunity to not pay its dividend for the rest of the year, and says the quarterly payout of $0.24 per share will be paid on April, 24, 2021, though it might defer it even later depending upon the spread of COVID-19.

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