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Yeezy Deal Not Enough To Save Gap, Analyst Says

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Yeezy Deal Not Enough To Save Gap, Analyst Says

Gap Inc (NYSE: GPS) shares are up 16.9% since the company announced an exclusive 10-year deal with Kanye West’s Yeezy brand in late June. However, one Wall Street analyst says Gap needs more than just Yeezy to overcome its near-term headwinds.

The Gap Analyst: Bank of America analyst Lorraine Hutchinson reiterated her Underperform rating for Gap but raised her price target from $7 to $10.

The Thesis: Hutchinson said the Yeezy deal is certainly a positive for Gap, but there are still too many unknowns about Gap’s long-term outlook, and West’s erratic behavior is a threat to the value of the Yeezy brand.

“While this will bring newness, we have doubts around the impact’s duration and see an elevated risk of distractions from the partnership (i.e. West recently tweeted he is running for President),” Hutchinson wrote in a note.

Hutchinson remains skeptical the Yeezy partnership will help Gap return to sustainable and profitable growth given secular headwinds in mall retail. She is also skeptical that Gap will be able to tap into and retain a younger demographic of shoppers based on the Yeezy deal alone. In early June, Gap reported a 43% drop in revenue in the first quarter.

At the same time, Hutchinson said Yeezy partner ADIDAS AG/S ADR (OTC: ADDYY) is likely not thrilled to have its brand associated with Gap by proxy.

Bank of America’s new $10 price target represents 3.5 times the firm’s projected fiscal 2021 enterprise multiple.

Benzinga’s Take: There’s no question the Yeezy deal is a step in the right direction for Gap. However, the big move in the stock since the deal was announced may be premature at this point given Gap has a long way to go to prove it can remain relevant in the modern retail environment.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Latest Ratings for GPS

DateFirmActionFromTo
Sep 2020UBSMaintainsNeutral
Sep 2020Morgan StanleyMaintainsEqual-Weight
Aug 2020B of A SecuritiesUpgradesUnderperformNeutral

View More Analyst Ratings for GPS
View the Latest Analyst Ratings

 

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Posted-In: Bank of America Kanye West Lorraine Hutchinson YeezyAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga

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