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American Eagle Outfitters Furloughs Employees, Cuts Inventory, Defers Dividends

By Rhian Hunt – Apr 3, 2020 at 1:40PM

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With its wings clipped by the pandemic’s effects, the retailer looks to sharply reduce costs.

Finding the economic wind beneath its wings weakening following coronavirus lockdowns and store closures, American Eagle Outfitters (AEO 2.43%) announced yesterday it is taking a multi-pronged approach to slashing its expenses during the crisis. Elements of its plan include deferring payment of the first-quarter 2020 cash dividend on its shares, suspending its stock buyback program, and furloughing many of its workers starting on Sunday, April 5.

Before the full force of the COVID-19 outbreak gripped the United States, the company reported continuing growth, driven in part by the strong success of its Aerie brand. Now, the company is battening down the hatches to preserve its financial position through the coronavirus crisis. It has fortified its liquidity by drawing down $330 million from its available revolving credit and withdrawn its March 4 guidance.

A red descending arrow on top of hundred dollar bills.

Image source: Getty Images.

Beginning April 5, the company intends to furlough an unspecified percentage of its associates without pay, on a temporary basis. These include not only in-store personnel but also corporate employees and field employees. It also does not indicate the length of the furlough, though it notes it will continue paying 100% of health insurance premiums for these individuals "at least" through the end of April.

Previously, American Eagle announced a $0.138 dividend per share for fiscal Q1 2020. In yesterday's announcement, it said it still means to pay these dividends, but the actual payments are deferred until April 23, 2021. American Eagle says it could potentially defer payment further based on the coronavirus and how its own financial situation changes in the future.

Rhian Hunt 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.

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