The stock split scene was quiet for a while before NVIDIA and Walmart spinoffs announced earlier this year, followed by Chipotle Mexican GrillThe mega ad divided 50 for 1.
Since then there have been a few more high-profile announcements about the stock split, but one of the most recent is one that may not be predicted: the home goods giant. Williams-Sonoma (NYSE: WSM). Let's look at why this market-leading stock is splitting and what investors should expect.
Slow sales, high resilience
The company's namesake Williams Sonoma chain sells high-end furniture, kitchenware and home goods. That said, it is on the lower end of the luxury spectrum, so while it targets a wealthy clientele, its products are also accessible to mass consumers. The company also owns popular brands Pottery Barn and West Elm, each of which has a slightly different brand and focus.
These are the types of brands that can they often prosper even amid higher inflation, since their target customers are not as affected by it. However, with the housing market still sluggish and Williams-Sonoma relying on mid-range clients for some of its sales, the impacts of recent macroeconomic conditions have been showing up in its business. financial statements. CEO Laura Alber said she is increasing marketing spending to capture market share and has also invested in improving its already excellent e-commerce segment.
In the first quarter of the company's fiscal 2024 year (which ended April 28), comparable sales decreased 4.9% year over year. However, that exceeded expectations. Earnings were $4.07 per share, blowing out Wall Street's consensus estimate. Management said that $0.59 per share came from an adjustment related to overreporting expected expenses in prior quarters, but even without that, earnings rose 48% from $2.35 per share in the prior-year period.
Operating margin also beat estimates at 19.5%, or 16.6% without adjustment. Despite lower sales, this figure was also well above last year's figure of 11.4%. Management raised its full-year outlook for operating margin and the market sent shares soaring in the wake of the report.
Why are you splitting your shares now?
When Williams-Sonoma recently announced its intention to split its stock, it cited the usual reasoning for such moves: "To make its stock more accessible to investors and employees."
Williams-Sonoma shares have risen about 150% over the past year, crushing gains in the broader market. It's trading at around $300 a share, which isn't exceptionally high these days - Chipotle is trading at a 4-digit price before its planned split, as was Nividia before its split. These types of price increases and price tags can still put a stock out of reach for some investors and employees. Walmart shares were only trading at about $165 when it announced its split in February, and have risen about 14% since the split.
There is some evidence to suggest that shares tend to soar in the period immediately following a stock split, but it doesn't look like Williams-Sonoma needs to revive its stock. Stock splits typically imply that a company is doing well and management expects that to continue.
Wall Street has been impressed with Williams-Sonoma's extraordinary performance in this economic climate, which bodes well for the years ahead.
Should You Buy Williams-Sonoma Stock?
Williams-Sonoma leads the home furnishings industry into the future. 66% of your sales come from digital channels, and as you invest more in these channels, you should be able to capture more market share. What many retailers are seeing since digital accelerated at the start of the pandemic is that omnichannel is the way forward; Retailers that are too focused on e-commerce are not giving customers the physical experience they crave when making digital purchasing decisions. Williams-Sonoma dominates the omnichannel model.
The home goods and furniture retail segment has low e-commerce penetration rates compared to other segments. With two-thirds of its sales already coming from digital channels, Williams-Sonoma should benefit organically as broader penetration rates increase.
Williams-Sonoma is a growing, well-managed company with strong growth drivers. It also pays a growing dividend. Its stock price might rise a bit thanks to its pending stock split, but the real reason to buy it now is because of its excellent long-term prospects.
Should I invest $1,000 in Williams-Sonoma right now?
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool posts and recommends Chipotle Mexican Grill, Nvidia, Walmart and Williams-Sonoma. The Motley Fool has a disclosure policy.
Learn about 1 of the latest stock splits on the market. Is it a purchase? was originally published by The Motley Fool
