Please ensure Javascript is enabled for purposes of website accessibility

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

By Rich Duprey - Updated Mar 27, 2020 at 9:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retailer says it won't pay a dividend until at least next April, maybe longer.

In a bid to conserve cash to survive the coronavirus pandemic, Gap Stores (GPS 2.50%) 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." 

A GAP employee.

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.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Gap, Inc. Stock Quote
The Gap, Inc.
GPS
$10.64 (2.50%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.