Gap (GPS) Furloughs Employees to Combat Coronavirus Impacts

Zacks Equity Research

Although Gap, Inc. GPS is keen on reopening its stores in North America and Europe, it expects the extension of store closure beyond Apr 1, given the growing cases of COVID-19. Notably, the company has been reeling under declining sales from soft performances in its namesake brand and Banana Republic along with unfavorable product mix. Adding to the woes, consumers’ shifting preference toward essentials spurred by COVID-19 has hurt sales.

Further, the company has now undertaken more stringent measures to flatten the curve. To this end, management has decided to put employees in the United States and Canada on leave as well as freeze payments of its employees in the said regions. However, other employee benefits will be provided until operations resume. Moreover, Gap intends to lower headcount worldwide and offers a temporary pay cut for its leadership team, including the board of directors, in response to the COVID-19 crisis.

 

 

Similarly, retailers, including Macy’s M, L Brands LB and Kohl’s KSS, announced to put thousands of employees on leave. Notably, Macy’s is furloughing most of its 130,000 workers in the United States, per sources. Also, L Brands decided to furlough employees such as store associates and those who can’t work remotely to support the online business. Kohl’s is likely to grant leave to workers at its stores and store distribution centers.

Coming back to the news, Gap has come up with an initiative to support its employees, who have been impacted by this crisis. In this regard, it has set up an Employee Resource Center, wherein people can apply for temporary jobs at retail outlets, which are open and looking for applicants.

Earlier, the company temporarily shut down all Old Navy, Banana Republic, Gap, Athleta, Janie and Jack, and Intermix stores in North America for two weeks. The move was in sync with its efforts to safeguard its employees. Prior to this, it had announced a reduction in store operating hours across the United States and Canada for a temporary period from Mar 16.

Further, the company strengthened its balance sheet by fully drawing upon its $500-million revolving credit facility. Also, it has decided to defer the payout of its previously announced dividend of 24.25 cents per share for first-quarter fiscal 2020. The dividend was to be paid out on or after Apr 28, 2020, of record as of Apr 7. Moreover, the company suspended paying dividends through the rest of fiscal 2020 due to the likely impacts of the coronavirus outbreak on its performance. On its fourth-quarter fiscal 2019 earnings call, it suspended its share repurchase program for fiscal 2020.

The company also reduced its planned capital expenditure for fiscal 2020 by $300 million. Management previously targeted capital spending of $600 million for fiscal 2020. Additionally, it is assessing opportunities to reduce all operating expenses to cut spending. Moreover, it will realign the inventory to match the expected sales trends.

In the past three months, shares of this Zacks Rank #3 (Hold) company have slumped 58.1% compared with the industry’s decline of 36.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

Apart from these, Gap has offered to leverage its partners to make scrubs and masks for healthcare workers and gowns for patients to support the government to contain the COVID-19 spread.

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Click to get this free report The Gap, Inc. (GPS) : Free Stock Analysis Report Macy's, Inc. (M) : Free Stock Analysis Report Kohl's Corporation (KSS) : Free Stock Analysis Report L Brands, Inc. (LB) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research