Investing

Here's Why Hermès Will Likely Announce a Stock Split

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If a random number of women who follow high couture and luxury goods were asked, “What would be your most coveted handbag?” There is a very good chance that the sophisticates would overwhelmingly choose Hermès over Louis Vuitton or Chanel. The exclusivity and rarity of Hermès’ Birkin (named after British actress Jane Birkin) and Kelly (named after Princess Grace of Monaco, formerly Hollywood actress Grace Kelly) handbags are internationally synonymous with exclusivity and status within the style and fashion worlds. 

With continued earnings growth over the last two decades and one of the most envied brand names on the planet, Hermès has been a valued part of many stock portfolios, as its price ascendancy has been relatively steady since 2005, except for a brief 6-month pull back in 2022. Given current market and business conditions at the time of this writing, there is good reason to believe that Hermès may likely announce a forward stock-split this year. 

From Horses to Handbags

Source: Naomi Baker / Getty Images Sport via Getty Images
Hermes was in the equestrian leather saddle, saddlebag, and bridle manufacturing business for over 70 years before getting into its famous luxury bags, perfumes and other products.

Hermès International Société en commandite par actions (OTC: HESAY) has a long history as a premier luxury brand, ironically starting in the equestrian saddle, bridle and harness business in 1837 Paris, France. After building a 3-generation strong business that supplied leather saddles, saddlebags, and other equestrian equipment to European royalty and wealthy businessmen, Emile-Maurice Hermès received an exclusive patent for the use of zippers on leather goods, leading to the first Hermès apparel – a 1918 leather golf jacket with zippered pockets for Edward, Prince of Wales. Zipper-equipped Hermès leather bags soon became very popular throughout the 1930s after Emile-Maurice personally created the first women’s leather handbag in 1922 to address his wife’s complaints over the lack of availability of a suitable one.

Silks, Scents and Ceramics

Source: Dimitrios Kambouris / Getty Images
Hermes ties for men and scarves for women have become emblematic of French sartorial style.

During the 1950s through the 1980s, Hermès would be led by Emile-Maurice’s son-in-law, Robert Dumas-Hermès, and then later, by his grandson, Jean-Louis Dumas. The Hermès brand built on branching into a deal with Universal Geneve for timepieces under Emile-Maurice in the 1930s by expanding to exotic silk scarves and ties in the 1940s, which were a big hit both in the US as well as Europe. Hermès would build these divisions over the following decades and also commenced its very popular perfume line, which numbers more than over 50 variants for both men and women. 

Hermès tableware, specifically, porcelain and crystal, launched in the 1980s and soon became a significant profit center as well. Riding out the 1970s and early 80s trends towards artificial materials, Jean-Louis’ insistence on natural fabric over polyester and leather over polyurethane became hallmarks of the Hermès reputation for high quality, and the company has been on a roll ever since.

Branding Strength In the Digital Age of Social Media Predators

Source: gesrey / iStock via Getty Images
Hermes successfully won a lawsuit against artist Mason Rothschild over unauthorized use of a Hermes Birkin bag image in his NFT

Additionally, Hermès successfully protected its brand by suing and winning a judgment and permanent ban against artist Mason Rothschild in February 2023 for selling his “Metabirkin” NFT, which used an unauthorized image of a Hermès Birkin bag. 

Justifying a Stock Split Announcement

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Forward stock splits are usually viewed as bullish market indicators.

10 Year stock chart for Hermes
Chart courtesy of Y-Charts. 

 Hermès has a number of reasons as to why a forward stock-split announcement may be in the cards for this year:

  • The stock price is just off its all-time high and up 600% over the last 10 years. 
  • The last stock split was back in June, 2006. That split went 3-for-1. 
  • 2023 revenues of $6.69 billion for Hermès were up over 22% over 2022, and the company’s margins are a fat and enviable 44%.   
  • Half of sales and growth are coming from Asian markets, which still have a newly growing middle class throughout the Pacific Rim and ASEAN countries.
  • Reducing the stock price in a 5-to-1 forward split to EU 476.80 or US 51.11 per share would create greater liquidity and increase the float at an affordable price for individual investors.

 

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