Gap Shares Surge After Retailer Reaches 'Yeezy' Clothing Line Deal with Kanye West

Kanye West's $2.9 billion 'Yeezy" clothing line will appear in Gap stores in 2021, the company said Friday, after reaching a multi-year deal with the entertainment icon.
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Gap Inc.  (GPS) - Get Report shares surged Friday after the struggling retailer unveiled a clothing and marketing partnership with entertainment mogul Kanye West.

Gap said the new 'Yeezy' clothing line, which is wholly owned by West and was recently valued at $2.9 billion, will appear in stores next year. West will receive loyalty payments and "potential equity' related to sales targets of the brand over its ten-year timeframe, Gap said.

West's Yeezy brand also has a partnership will Adidas AG  (ADDYY) , and its sneaker sales added $1.3 billion to the German sportswear giant's revenues last year.  

“We are excited to welcome Kanye back to the Gap family as a creative visionary, building on the aesthetic and success of his YEEZY brand and together defining a next-level retail partnership,,” said Gap's global head of branding Mark Breitbard. 

Gap shares were marked 35.2% higher in early trading Friday to change hands at $13.77 each, a move that would still leave the stock nursing a 22% year-to-date decline.

The addition of the Yeezy line could be one of the most significant moves in an uneven turnaround plan for the San Francisco, California-based retailer, which reversed plans to spin off its Old Navy division into a standalone business.

Gap said the spin-off could be too costly and complex, and prefers to focus on near-term sales increases at all three of the groups brands -- Gap, Old Navy and Banana Republic.

Earlier this spring, Gap said its cash and short-term investments, which totaled $1.7 billion on February 1, will likely fall to between $750 million and $850 million at the end of its fiscal first quarter, which ends on May 2. As a result, the company said it will attempt to preserve its cash position by deferring capital spending or refinancing debt.

The group also said it may face longer-term store closures, and other operational restrictions, as the coronavirus pandemic keeps lockdowns and stay-at-home orders in place in major economies around the world.