Gap Has Burned Through Half of Its Cash Savings — and It Might Not Have Enough to Fund Operations

As the coronavirus pandemic continues to cripple its business, Gap Inc. has already burned through half of its cash reservoir and warned that it might not have enough money to survive the next year.

In a filing on Thursday, the retailer — parent to namesake brand Gap as well as Old Navy, Banana Republic and Athleta — informed the Securities and Exchange Commission that it expects to have $750 million to $850 million of cash and equivalents at the end of the fiscal quarter on May 2. It had $1.7 billion as of Feb. 1.

“If our business does not generate sufficient cash flows from operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to cover our expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm our business,” the company wrote in the 8-K report.

In order to continue funding operations, Gap said it would have to seek additional sources of liquidity, including a combination of new debt financing or other short-term credit facility. It said it would also need to defer capital expenditures, reduce headcount and cut back on operating expenses.

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“There can be no assurance that we will successfully complete these actions,” the company warned. “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.”

Gap also shared today that it has skipped April’s rent payments in North America worth roughly $115 million. The apparel and accessories chain added that it was currently negotiating with landlords to defer or abate rent as stores remain closed — or even terminate leases and permanently shutter some outposts.

Last month, Gap drew down its full $500 million credit line and withdrew its full-year outlook. The retailer also placed the majority of its employees in the U.S. and Canada on unpaid leave, while reducing headcount across its corporate functions and cutting take-home pay for its entire leadership team and board of directors.

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