UBS analysts saw what Kanye West did for Adidas AG and thought that the controversial rapper and fashion designer could do the same for sick Gap Inc.
Gap announced on Friday that it has partnered with Kanye for the Yeezy Gap collection that will include items for men, women and children at affordable prices. The clothing will hit stores of the eponymous clothing chain and website in 2021.
“When Adidas ADS,
started partnering with Kanye West five years ago, started a brand revival, “Wells Fargo analysts led by Ike Boruchow wrote.
See:Analysts say Nike’s declining COVID-related sales is a stumbling block on the path to long-term growth
“Bears will likely point out that an additional $ 700 million in sales (at best) is not material to Gap’s $ 15 billion sales base, but we would argue that, much more importantly, this partnership could provide a halo effect. Positive to the Gap brand (and share price) that has struggled to rediscover its ‘awesomeness’ in the past decade, while increasing traffic and purchases from new and expired customers. “
Gap shares closed 18.8% on Friday. The stock has lost more than 31% of its value in the past year, while the S&P 500 SPX index,
It is up 3.3%.
Gap’s portfolio also includes the Banana Republic and Old Navy brands.
Wells Fargo updated Gap earlier this week, calling the move “idiosyncratic.” The update was based on the strength of the Athleta brand and the company’s real estate, but analysts say the call attracted “largely (and loudly) a negative volume of incoming calls.”
Read:More Consumers Are Ready to Go Back to Stores Than to Dine in Restaurants, S&P Global Says
Wells Fargo rates the Gap stock overweight with a price target of $ 19.
“While this announcement was unexpected, it is very much in line with our view that the Gap property and new management have acquired a new ‘all options on the table’ mindset, and are highly committed to finding new and creative ways to unlock the value of your portfolio, “analysts said.
Cowen analysts agree that there are a number of benefits to Gap, including a connection to a premium and relevant brand.
“Gap’s creative direction and merchandise execution have been very inconsistent; These efforts can put the brand in a new positive direction and create greater appeal for a younger customer, “wrote analysts led by Oliver Chen.
Analysts say there are risks, such as the challenges of launching a new brand when trying to execute a change, and the possibility that Yeezy Gap may cannibalize Gap’s core merchandise.
But given Friday’s stock movement, Cowen says the association could make a profit of $ 1 billion by 2025.
Cowen rates the performance of the Gap stock market with a price target of $ 11.
.
