American Eagle Defers Dividend & More on Coronavirus Crisis

American Eagle Outfitters Inc. AEO is the latest to announce its plans to safeguard financial credibility, after having previously chalked out recourse to curb the coronavirus spread. As part of the recent measures, the company suspended its share repurchase program and also deferred its first-quarter fiscal 2020 dividend payment of 13.75 cents per share, which was to be paid on Apr 23.

Further, it announced temporary furloughs of its store, field and corporate employees starting Apr 5, as the course of store closures remains uncertain.

In other efforts, the company is looking to cut on its operating expenses by delaying promotions for employees, halting hiring and undertaking other cost-saving initiatives. It will also reduce inventory receipts during the period to match with the lower demand as stores remain closed. Further, the company will focus on reducing capital expenditure cross stores, IT and other projects. However, it expects to retain investments in digital and distribution centers to serve its online customers.

Earlier, the company temporarily closed all AE and Aerie stores across the United States and Canada. The clothing retailer has also withdrawn its first-quarter fiscal 2020 guidance. Further, American Eagle recently drew $330 million from its revolving credit facility to boost liquidity. The company had strong financial standing, with $417 million in cash and short-term investments and no debt at the beginning of fiscal 2020.

 

 

We note that shares of American Eagle have plunged 53.8% year to date compared with the industry’s decline of 56.9%. The company currently has a Zacks Rank #5 (Strong Sell).

 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The coronavirus outbreak has negatively impacted the retail industry, forging questions as to when normal operations will resume. Amid the coronavirus crisis, retailers are leaving no stone unturned to safeguard their employees as well as their financial well-being. Retailers have succumbed to prolonged store closures, lower traffic trends, reducing working hours and permitting employees to work remotely. Some companies are also opting for employee furloughs for extended periods and pay reductions until operations resume.

Citing the impacts of the entire situation on its revenues and profits, the companies have withdrawn their guidance, pulling back dividends and halting share repurchases, and drawing cash from revolving facility to maintain financial flexibility.

However, American Eagle is not the only one to adopt the measures in the face of the pandemic that has disturbed the economy. Other apparel and specialty retailers, including Ross Stores ROST, Macy’s M and Gap GPS, have also adopted similar measures to retain financial flexibility to tide over the uncertainties arising from the COVID-19 outbreak.

Ross Stores, for instance, has extended store closure plans until further notice. Moreover, to safeguard financial liquidity, the company suspended its share repurchase program and cut its capital expenditure and other expenses. Also, management has drawn $800 million from its revolving credit facility to add to its cash balance. Moreover, on Apr 2, it informed that it will temporarily furlough the majority of its store and distribution center employees, and other associates across the business starting Apr 5, until operations resume.

Macy's has undertaken a slew of measures, including the suspension of its second-quarter fiscal 2020 dividend, assessment of non-essential operating costs, reduction of capital expenditure for fiscal 2020 and withdrawal of fiscal 2020 outlook in view of the uncertainty surrounding the coronavirus pandemic.  Further, it drew the entire $1.5 billion on its credit lines.

Apart from extended store closures across all brands, Gap has decided to put employees in the United States and Canada on leave as well as freeze payments of employees in the said regions. However, other employee benefits will be provided until operations resume. 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 first-quarter fiscal 2020 dividend of 24.25 cents per share alongside suspending the share repurchase program.

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