Gap stock soars after Kanye West touts collaboration with his fashion brand Yeezy

Key Points
  • Kanye West's Yeezy is developing a clothing line for men, women and kids that will sell in Gap stores and on its website starting in 2021.
  • Shares were up about 20% in the final hour of trading on Friday, but had been up as much as 40% earlier in the day.
  • The deal was planned before the pandemic, but it comes at a fortunate time as Gap tries to recover from sales losses.

In this article

Kanye West and daughter North West attends the "Yeezy Season 8" show as part of the Paris Fashion Week Womenswear Fall/Winter 2020/2021 on March 02, 2020 in Paris, France.
Arnold Jerocki | Getty Images

Gap shares soared Friday after Kanye West shared a photo that touted his collaboration with the retailer.

Shares closed up 18.8% Friday at $12.07, but had been up as much as 40% earlier in the day. The move added more than $700 million to Gap's market cap, pushing it to about $4.5 billion. 

Gap and West are developing a clothing line for men, women and kids that will be sold in its stores and online. The retailer said in a news release that the items from his fashion brand, Yeezy, will be made up of "modern, elevated basics" sold at "accessible price points." The new line will debut in 2021. 

West is the sole owner of the Yeezy brand, Gap said in its press release. 

The partnership is a ten-year agreement, a person familiar with the deal's terms said. Gap did not disclose terms of the deal, but said Yeezy will receive royalties and may get equity based on how much it sells. Gap has issued Yeezy Supply warrants for up to 8.5 million shares depending on whether the brand meets certain sales targets, according to a filing with the Securities and Exchange Commission.

Yeezy Supply is guaranteed the first third of those shares if annual net sales of the Gap-Yeezy line hit $250 million and the pursuant thirds if sales reach $450 million and $700 million annually. Those warrants expire 20 days after the company confirms its sales for fiscal 2025.   

Following Friday's rally, the total stake is worth more than $100 million at the current share price. In all, Yeezy Supply could have up to a 2% ownership in Gap, based off the company's current share count. 

The fashion partnership may seem like an unlikely one for some industry-watchers, but may have a familiar ring for West's music fans. He worked in a Gap store as a teen and referred to his time there in the lyrics of "Spaceship," on his 2004 College Dropout album.

The retailer and artist have been in touch for years, people familiar with the situation told CNBC, with West speaking openly of his hopes to work with the retailer as early as 2015. Over the past year, Gap and Yeezy began to negotiate more seriously about striking a deal, the people said. 

The deal was already underway before the pandemic struck. Yet the move comes at a fortunate time for Gap and gave the company a much-needed boost on Friday. Gap was struggling to resonate with customers before the pandemic. Shuttered stores during stay-at-home orders dealt another blow. 

Sales at Gap's namesake brand were down 50% in the first quarter, which ended May 2. The company, which has skipped rent payments during the pandemic, has been sued by mall owner Simon Property Group.

Gap's CEO Sonia Syngal told analysts earlier this month that the company is working improve its brand and its assortment.

With the deal, Gap will gain a mix of high-profile goods that could draw in new customers or entice long-time customers to return. Yeezy will get the benefits that brick-and-mortar retailers have given upstart brands — access to a platform and supply chain that can speed up growth. The Gap deal could also help Yeezy, which sells sneakers that cost hundreds of dollars, reach more price-conscious customers as the recession pressures consumers' wallets. 

Gary Vaynerchuk: Control what you can
Gary Vaynerchuk: Control what you can

Yeezy already has a shoe partnership with sports brand Adidas. A spokesperson for the German company declined to comment on the Gap collaboration when asked about it on Friday. 

In its announcement of the deal, Gap said West's experience working in one of its stores has come full circle.

"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," Mark Breitbard, the company's global head of brand, said in a news release.

In a tweet on Friday, West included a photo of clothing being taken out of bag that says "developed by Yeezy and GAP." He included the hashtag #WESTDAYEVER. The tweet was previously reported by Complex.

His wife, Kim Kardashian West, expressed excitement about the collaboration and described it as a "dream come true."

—CNBC's Amelia Lucas contributed to this report. 

Inside Kanye West's struggle to build a Yeezy sneaker empire
Inside Kanye West's struggle to build Yeezy