Split Happens, But Will It Make You Rich? Unveiling the Hidden Gem Behind Williams-Sonoma’s Stock Split

Aldel Galo | July 9, 2024

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The allure of stock splits has captivated investors in 2024. Tech giants like Nvidia (NVDA) and Broadcom (AVGO) have announced splits, but a lesser-known company boasts an even more compelling long-term story and an impending stock split of its own. Williams-Sonoma (WSM), the home furnishings powerhouse behind Pottery Barn, West Elm, and its namesake brand, is poised to become more accessible to retail investors on July 8th.

A History of Growth Through Splits

Since its 1983 IPO, Williams-Sonoma has delivered a staggering 27,000% return in share price, with dividends pushing that figure closer to 41,100%. This remarkable growth has been accompanied by a strategic use of stock splits. The company has completed seven forward splits throughout its history, the last one occurring in 2002. The upcoming 2-for-1 split, implemented as a stock dividend, will bring the share price closer to $140, potentially attracting a broader investor base.

E-commerce Savvy Meets Resilient Customer Base

Williams-Sonoma’s success hinges on two key factors. First, the company has been a leader in e-commerce adoption within the home goods sector. Two-thirds of its sales now flow through digital channels, contributing to an impressive 11.1% compound annual growth rate since 2019. This online focus keeps overhead costs streamlined and allows the company to reach a wider audience.

Second, Williams-Sonoma caters to a demographic with spending power. Its focus on middle-to-upper-income consumers provides a layer of insulation during economic fluctuations. With mortgage rates on the rise, existing homeowners are less likely to move, potentially leading to increased spending on home renovations and upgrades – a trend that directly benefits Williams-Sonoma.

A Split with a Cautious Outlook

While the stock split signifies confidence in the company’s future, some questions linger. Sales growth has plateaued in recent years, even as higher margins and share repurchases have bolstered the bottom line. The current forward price-to-earnings ratio sits at 17, a 34% premium over the trailing five-year average.

The Verdict: A Long-Term Play with Near-Term Uncertainty

Williams-Sonoma’s upcoming stock split is a positive sign for investor accessibility and employee stock ownership plans. However, the long-term viability of the stock hinges on reigniting meaningful sales growth. Investors should carefully consider the company’s future trajectory before taking a position, but the strong brand recognition, e-commerce prowess, and resilient customer base paint a promising picture for Williams-Sonoma’s future.