Kardashian Stay Winning...Kanye Teams Up With Gap
A couple of years ago, Kylie started a company in 2015, selling Lip Kits…they were an instant hit. The company sold over $1 billion in makeup the first three years. Lip Kits was eventually picked up by Ultra Beauty and within six weeks Kylie Cosmetics had sold $54.5 million worth of products.
Coty Inc., together with its subsidiaries, manufactures, markets, distributes, and sells beauty products worldwide ended up buying a 51% stake in Kylie Cosmetics for $600 million making Kylie the youngest ever billionaire. About six weeks ago, the Coty’s stock price fell after Forbes reported the story stating that Kylie’s business is significantly smaller, and less profitable, than the family has spent years leading the cosmetics industry and media outlets, including Forbes, to believe. Forbes has recalculated Kylie’s net worth and concluded that she is not a billionaire and was worth a little under $900 million. OK, so she isn’t a billionaire, but who wouldn’t want to be worth $900 million.
In early June, Coty’s stock price rose after company announced that it is currently in talks with Kim Kardashian West for a possible collaboration. Kim owns and controls the KKW Beauty line of beauty products, which Forbes recently valued at around $100 million.
Then news hit on Friday that Kanye West is teaming up with the Gap.
The struggling apparel company’s shares soared the most in at least 40 years after it revealed a partnership agreement with the head-turning rapper and designer.
The move may give Gap some much-needed life as it struggles with changing consumer tastes and a turnaround effort that has been stymied by the coronavirus pandemic. Hitching itself to the sometimes-controversial artist could help Gap reinvigorate the brand, said BMO Capital Markets analyst Simeon Siegel.
The arrangement will expose West’s upscale brand to a broader market while letting Gap capitalize on Yeezy’s recent growth. Mark Breitbard, global head of the Gap brand, said in the statement that the new line would build on “the aesthetic and success” of the Yeezy brand.
Terms of the deal with the Gap include royalties and potential equity based on sales performance. Management hopes to generate $1 billion in annual sales from the brand within five years.
In 2013, Kanye left Nike and signed a $10 million deal with Adidas because West said Nike was unable to provide him the creative freedom necessary to create his sneaker. According to Forbes, the Yeezy venture with Adidas topped $1.5 billion in 2019. So a billion in sales in five years is quite possible for Gaps and Kanye.
The Kanye deal comes on the heels of Wells Fargo upgrading Gap stock from Underweight to Overweight with a $19.00 price target. But with all the good news possible price into he stock at what point does one sell the stock.
Even before COVID-19 GAP was struggling and was on my watchlist of dividend traps. In early March, Gap announced a quarterly dividend of $.24 per share, which equated to a dividend yield of 8%. However, in late March after reporting net sales fell 50% due to COVID-19 forcing the stores to close, the dividend was suspended.
So getting back to is all the good news priced in because for every buyer there has to be a seller. On Friday, I decided to take the other side of the trade through options by buying put options that expire in January.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
Posted Using LeoFinance
