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Retail’s COVID-19 Strategy? Hoard Cash to Ride Out Virus Storm

Cash is king—and at this moment more so than ever as fashion firms rejigger operations, recalculate capital expenses, cut costs and keep payroll afloat now that stores are temporarily out of the equation.

Fashion empires, retailers and mall operators alike are taking important steps to review the far-reaching impacts of a coronavirus pandemic whose havoc continues to play out across the globe.

Many of the industry’s biggest names are bolstering their cash positions and suspending share-buyback programs as their top priorities for the near term.

Burberry

London’s luxury stalwart, for one, is acting swiftly to mute the outbreak’s impact.

“We are implementing mitigating actions to contain costs and protect our financial position, including renegotiating rents, restricting travel and reducing discretionary spending,” Burberry said on Thursday.

“Our primary concern is the global healthy emergency and we continue to take very precaution to help prevent the spread of the virus and ensure the safety and wellbeing of our employees, partners and customers. We are implementing mitigating actions to contain our costs and protect our financial position, underpinned by our strong balance sheet. We remain confident in our strategy and the strength of our brand,” CEO Marco Gobbetti said.

Due to the “significant escalation” of governmental trading, travel and social restrictions and the impact on demand, Burberry said it expects “comparable retail store sales in the final weeks of the year to be within the range of [down] 70 percent to [down] 80 percent.” Fourth quarter 2020 comparable retail store sales are projected at down 40 percent. The company’s current fiscal year ends March 28.

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Burberry’s last financial update in February only took into account the impact from sales losses in its Asian markets.

“While trading in Mainland China has started to improve with the reopening of most of our stores, sales in [Europe, Middle East, India and Africa] and the Americas have fallen materially in recent weeks,” the company said, noting that more than 60 percent of doors in the EMEIA region are closed, as well as 85 percent of stores in the Americas. “In addition, around 40 percent of our directly operated stores globally are closed with additional closures expected over the coming days.”

The fashion house emphasized that it has “significant financial headroom” that includes liquidity of 900 million pounds ($1.04 billion) from 600 million pounds ($692.3 million) in cash balances before lease obligations and a 300 million pound ($346.2 million) revolving credit facility. As of September, Burberry had 400 million pounds ($461.5 million) of net debt including lease liabilities. The company’s next scheduled announcement will be in May for preliminary results for the fourth quarter and year end.

Kohl’s Corp.

Kohl’s Corp. on Thursday said it will close all stores nationwide through at least April 1. The store closures begin on Thursday at 7:00 p.m. local time. The closures are a response to the escalating COVID-19 epidemic and to help slow down the spread of the virus.

“We will continue to serve customers on Kohls.com and our Kohl’s App, and we look forward to reopening our stores soon to serve families across the country,” Michelle Gass, CEO, said.

The retailer withdrew guidance issued on March 3 for the first quarter and full year 2020.

“The company is also appropriately adjusting its operational needs, including a significant reduction in expenses and inventory. In addition, as a precautionary measure, the company is modifying its capital allocation plan for 2020, which includes decreasing its capital expenditures, temporarily suspending its share repurchases and evaluating its dividend program,” Kohl’s said.

And to ensure financial flexibility, the company said it has leveraged its balance sheet by fully drawing on its $1 billion unsecured credit facility to “increase its cash position.”

TJX Cos. Inc.

TJX said on Thursday that it was closing down all of its stores in the U.S., Canada, Europe and Australia for two weeks. That’s in addition to the store closures previously announced in Germany, Poland, Austria, Ireland and the Netherlands. The off-pricer is going further and shutting its online businesses at tjmaxx.com, marshalls.com and sierra.com.

And in a move to “strengthen its financial position and balance sheet, and maintain financial liquidity and flexibility,” TJX is drawing down $1 billion from its revolving credit facilities, suspending its share repurchase program, evaluating its dividend program, reviewing all operating expenses and reducing capital expenditures. Furthermore, first quarter and full year fiscal 2021 financial guidance given on Feb. 26 has been withdrawn.

“As the COVID-19 pandemic is complex and evolving rapidly, the company’s plans as outlined above may change,” TJX said.

Burlington Stores Inc.

Burlington, another off-pricer, also has closed its corporate offices and is closing all stores. Earlier this month the company revealed plans to close its online operations to focus on brick and mortar.

“We continue to have confidence in our strategic initiatives and longer term growth potential. However, the spread of the COVID-19 virus is clearly having a material impact on the whole retail sector. In this time of unprecedented disruption and uncertainty, we are carefully managing our expenses, inventory receipts, capital expenditures and balance sheet,” Michael O’Sullivan, CEO, said on Thursday. The company will continue to pay store associates at stores that are temporarily closed.

“The company is now taking a more conservative approach to managing its cash flow given the uncertainty regarding the duration of the COVID-19 virus on store traffic, and is carefully managing operating expenses, working capital expenditures during this period, as well as suspending its share repurchase program,” Burlington said. The company began the current fiscal year with about $400 million in cash, and earlier this week added to its cash balance by borrowing $400 million on its $600 million asset-based loan “as a precautionary measure in order to facilitate increased financial flexibility.”

Ross Stores Inc.

Given the unknown duration and overall impact on consumer demand, Ross Stores joined its off-price competitors in drawing down funds from its financing facility to build cash reserves.

“To preserve financial liquidity, and out of an abundance of caution, management is also temporarily suspending the company’s stock repurchase program and is drawing down $800 million under its revolving credit facility to add to its cash balances. In addition, the company is currently reducing its capital expenditures and expense plans as well as aligning inventory positions with current sales trends in the business,” Ross Stores said.

“I want to emphasize that our company began 2020 in a strong financial position. We are proactively taking these early actions to further increase our liquidity and flexibility to successfully manage through these challenging times. We will continue to monitor ongoing developments and respond accordingly,” CEO Barbara Rentler said.

Ross Stores also said that February sales, the start of the current first quarter, were ahead of expectations, but that the company has since experienced a broad-based deceleration in sales trends over the past week because of the spread of COVID-19 throughout the country and mandatory store closures in certain markets.

“Further, additional store closures are expected,” the company said.

L Brands Inc.

Per a regulatory filing on Thursday with the Securities and Exchange Commission, Stuart B. Burgdoerfer, L Brands’ executive vice president and chief financial officer, told the SEC that the company has decided to “suspend all new e-commerce orders for Victoria’s Secret and Pink through March 29. The Bath & Body Works e-commerce business will continue to operate with prioritization on soaps and hand sanitizers.”

The CFO said the company is withdrawing prior financial guidance due to the uncertainty on the potential impacts of the coronavirus on L Brands’ “business operations, including its duration and its impact on overall demand for merchandise.”

The company on Tuesday announced plans to shutter its retail doors for both brands across North American through March 29.

Simon Property Group

Simon is one of the largest real estate investment trusts in the U.S., operating malls and premium outlets and mills. The REIT said it would close all of its retail properties beginning at 7 p.m. Thursday night through March 29.

“The health and safety of our shoppers, retailers and employees is of paramount importance and we are taking this step to help reduce the spread of COVID-19 in our communities,” David Simon, chairman, CEO and president, said.

On Monday, the company disclosed that it had strengthened its balance sheet with a new $6 billion senior unsecured credit facility. It replaces, by amendment and extension, its former $4 billion senior unsecured multi-currency revolving credit facility. The new financing facility is comprised of a $4 billion multi-currency revolving credit facility and a $2 billion delayed-draw term loan facility. Simon said the new facility affords the option to expand the total amount of the financing facility to up to $7 billion. The maturity dates are June 30, 2024 for the revolving credit facility and June 30, 2022 for the term loan.

Macerich Company

Macerich, also a REIT, has also reviewed option for preserving capital and flexibility, while complying with REIT taxable-income requirements. On Monday, the company announced a reduction of its quarterly dividend to 50 cents per share. The dividend will be payable 20 percent in cash and 80 percent in common stock. The change will go into effect for its next dividend payment on June 3, to shareholders of record on the close of business on April 22. The prior quarterly cash dividend was 75 cents per share.

The change gives Macerich the ability to retain an excess of $98 million in incremental cash each quarter and about $400 million on an annual basis.

“The company expects to use the retained cash to reduce debt and for general corporate purposes. In addition, the company will be evaluating all capital uses including the size and pace of redevelopment investments,” Macerich said.