The Gap, Inc. (GPS) shares rose more than 25% during Friday’s session after the retailer signed a new 10-year deal with Kanye West’s Yeezy brand. The celebrity, entrepreneur, rapper and designer will create a new line of adult and kids clothing that will be sold at Gap stores beginning in the first quarter of next year. Under the terms of the deal, Yeezy will receive royalties and potential equity based on sales performance. Management hopes to generate $1 billion in annual sales from the brand by year five.
The move comes shortly after Wells Fargo upgraded The Gap stock from Underweight to Overweight with a $19.00 price target earlier this week. After Friday’s news, analyst Ike Boruchow added that the unexpected deal was a positive catalyst and could provide a positive halo effect to the ailing brand.
The mall-centric brand has struggled in the wake of COVID-19. Despite a 40% increase in online sales and 1,500 stores open in North America, The Gap reported lower-than-expected earnings per share and hasn’t provided fiscal 2020 guidance.
From a technical standpoint, the stock briefly broke out from the 200-day moving average at $13.39. The relative strength index (RSI) remains neutral with a reading of 58.90, but the moving average convergence divergence (MACD) could see a near-term bullish crossover. These indicators suggest that the stock could have more room to run over the coming sessions.
Traders should watch for a sustained breakout from the 200-day moving average and prior resistance at around $13.39 over the coming sessions. If the stock breaks out, traders could see a move back to prior highs of around $18.00. If the stock fails to break out, traders could see a move lower to retest support at around $10.00 or the 50-day moving average at $9.26.
The author holds no position in the stock(s) mentioned except through passively managed index funds.