Forget Walmart: The biggest retail stock split of the year has arrived

Since the advent of the Internet some three decades ago, investors have consistently had a major innovation or game-changing technology to capture their attention. However, 2024 was somewhat unique in that two trends were vying for recognition at the same time.

While there’s no denying that the rise of artificial intelligence (AI) has helped lift all three major stock indexes to record highs, the excitement surrounding stock splits has played an equally important role in boosting the valuations of select prominent companies in 2024.

Image source: Getty Images.

Think of stock splits as a tool in the proverbial utility belt of publicly traded companies that they can use to adjust their stock price. Note that this tool is purely cosmetic. Changing a company’s share price and number of shares outstanding by the same factor has no impact on market capitalization or operating performance.

Although there are two types of stock splits—forward and reverse—investors overwhelmingly prefer the forward-stock split. Forward splits, which are designed to lower a company’s stock price to make it nominally more affordable for retail investors without access to fractional stock purchases through their broker, are typically carried out by companies that are outperforming their peers.

Since the start of 2024, just over a dozen leading companies with sustained competitive advantages have announced or completed a stock split — all but one forward-split.

After the close of trading today, the next phenomenal deal will step forward and take its place among the “Class of 2024” stock splits, and in the process, knock down retail discontent. Walmart (WMT 1.18%) from the spotlight.

Walmart kicked off the stock split frenzy in late January

Despite plenty of tech stocks skyrocketing in the wake of the AI ​​revolution, it was Walmart that opened the floodgates for major stock split announcements this year.

In late January, Walmart’s board approved a 3-for-1 forward split — the largest in the company’s history and the 12th split since going public in October 1970 — to make the stock more affordable for company employees. According to CEO Doug McMillon, “Sam Walton believed it was important to maintain our stock price in a range where the purchase of whole shares, rather than fractions, was accessible to all of our associates.”

When that split was completed after the close of trading on February 23, Walmart’s stock price fell from $175.56 to $58.52, while the number of shares outstanding increased by a factor of three.

Chief among Walmart’s competitive advantages is its size. Having deep pockets and the ability to buy in bulk, thereby reducing the cost per unit for each item, has allowed him to consistently undercut local stores and even regional/national grocery chains. Walmart understands the importance of its value proposition to consumers and has consistently won on this front for decades.

Walmart is also enjoying tangible benefits from its e-commerce push. The convenience of ready pickups and deliveries hit home with busy consumers, driving e-commerce sales up 22% in the US in the fiscal second quarter (ended July 26, 2024) and 18% in international markets.

But Walmart is yesterday’s news on the stock split front. A dominant retailer that has embraced e-commerce and seen its stock explode more than 12,000 percent since its initial public offering (IPO) in 1993 is poised to take center stage in the retail industry.

Image source: Getty Images.

Skyrocketing Retailer — Up 12,600% Since IPO — Conducts Largest Stock Split Ever

In mid-July, the leading footwear and apparel retailer Deckers Brands (DECK 1.73%) announced plans to conduct a 6-for-1 forward split. This is the second time since the IPO that it has conducted a forward split, the other being a 3-for-1 split in July 2010.

Former CEO Dave Powers, who retired last month but led Deckers Brands for the past eight years, had this to say about his company’s board approving the historic 6-for-1 split:

The trading price of our common stock has increased significantly over the past several years as a result of our strong financial performance and the execution of our strategic plan. We believe that effecting the forward stock split will make shares of our common stock more accessible and attractive to a wider group of potential investors, including our employees, and will increase the trading liquidity of our common stock.

The effective date for this split is (reel roll) after close of business today, Monday, September 16th. When Deckers Brands shares trade tomorrow, they’ll be at the split-adjusted price closer to $156, instead. from the $935.07 at which it closed on September 13.

As we alluded to earlier, one of the long-standing keys to Deckers’ success has been its push for e-commerce. As of the most recent quarter ended June 30, the company reported direct-to-consumer (DTC) sales of $310.6 million, up nearly 22% from the year-ago period. More importantly, DTC sales accounted for nearly 38% of total revenue, compared to less than 32% of net sales in the same quarter three years ago.

That nearly six percentage point improvement might not sound like much, but it made Deckers Brands increasingly an inventory-light business. The need to tie up its cash in inventory and production has led to higher margins for the company.

The strength of the company’s brands has also played a key role in its long-term success. Although it owns about half a dozen major brands, the best known include Ugg, Hoka and Teva. Hoka ($420.5 million in the last quarter), Ugg ($195.5 million) and Teva ($48.4 million) account for the lion’s share of sales.

But the most interesting aspect of Deckers’ strategy has been its international expansion. E-commerce is still in its infancy in international markets, which provides the company with an opportunity for sustained double-digit, high-margin growth.

DECK Cash & Equivalents Data (Quarterly) by YCharts.

The icing on the cake is that Deckers Brands is a debt-free company with $1.4 billion in cash and cash equivalents. It has the financial flexibility to make deals, just as it did when it bought Ugg in 1995 and Hoka in 2012.

While this sizeable stock split is long overdue, it can also be argued that Deckers Brands has some growing to do at its current valuation. While the company’s stock is absolutely worth a premium given the momentum it’s enjoying from DTC’s growth, its international momentum and its top-notch branding, the stock is trading at 26 times annualized earnings. That might not seem like a big price to pay, but consensus annual earnings growth over the next five years is a more modest 11.4%.

In other words, Deckers Brands will likely have to blow the doors off Wall Street and its own growth forecasts if its stock is to rise any further.