Major national retailers take up a lot of space in commercial real estate portfolios both private and public, and the coronavirus pandemic has put many in peril. But a number of household names are weathering the viral storm well. We picked four of them to highlight as essential companies with established track records that even if, tragically, the economy and pandemic take a turn for the worse, will in all likelihood be there on the other side.
They vary in size -- Home Depot (NYSE: HD), with a market cap of $310 billion; CVS Health (NYSE: CVS), a market cap of $77 billion; Kroger (NYSE: KR), a market cap of $26 billion; and Dollar Tree (NASDAQ: DLTR), a $23 billion market cap -- but, along with long histories, these four companies share the fact their stock prices have stabilized and their business models allow them to form the foundation for many a CRE investment in the property they occupy.
For instance, Realty Income (NYSE: O) has 550 leases with Dollar Tree, 19 with Home Depot, 22 with Kroger, and 88 with CVS. Kimco Realty (NYSE: KIM), meanwhile, lists 74 Dollar Tree, 22 Home Depot, 19 Kroger, and 34 CVS leases.
So these four major retailers are not only essential to the American consumer but pretty darn important to a lot of investment cash as well, including those real estate investment trusts (REITs) that rely on their rent. Let's take a look at why they'll likely be with us for a good while to come.
CVS Health is more than just retail pharmacies. Along with its thousands of stores, both stand-alone and inside large retailers like Target (NYSE: TGT), CVS has become a major provider of pharmacy benefits management and clinical services.
CVS stock closed at $59.09 on Oct. 13, right in the middle of its 52-week range of $52.30 to $76.58. But it's those ubiquitous retail stores that really make CVS a household name.
The Rhode Island-based company boasts more than 9,900 retail locations across the country, employing about 300,000 people. There are now about 1,100 of the popular Minute Clinic locations, along with more than 68,000 pharmacies affiliated with its retail network and 62 million members of its ExtraCare program. CVS's pharmacies alone serve more than 4.5 million people a day, making CVS the essence of essential.
CVS just raised its adjusted earnings per share guidance for the year by $0.10 to $7.14-$7.27 after posting second quarter EPS of $2.64 as total quarterly earnings jumped year over year by 3% to $65.3 billion.
Dollar Tree operates more than 15,000 stores under the Dollar Tree, Family Dollar, and Dollar Tree Canada brands, employing more than 193,000 people. These stores are typically in low- to middle-income areas and dot the rural landscape, often presenting residents' only easy access to daily necessities and nonperishable groceries.
In September, the Virginia-based company opened its 25th and 26th distribution centers in Texas and Florida, respectively. In the second quarter the company reported net sales of $6.28 billion, up 9.4% from the year-ago quarter, and grew earnings per share by 45% to $1.10 in the same time frame.
The company's stock has recovered nicely from the spring pandemic plunge, and same-store sales were up 11.6% for Family Dollar and 1.1% for Dollar Tree compared with the second quarter of 2019. That's along with opening 131 new stores and expanding or relocating 22 others. According to Supermarket News, "Plans call for the retailer to open 500 new stores -- 325 Dollar Tree and 175 Family Dollar locations -- and complete 750 Family Dollar H2 store renovations in fiscal 2020."
Home Depot is the big engine that still can in the home improvement space, and that is a big space, indeed.
The Atlanta-based company -- whose soaring growth years back created enough wealth for a co-founder to take on hobbies like owning the Atlanta Falcons -- reported second quarter sales of $38.1 billion, jumping 23.4% from the second quarter of 2019, when it already was the world's largest home improvement retailer.
As of June 30, Home Depot employed more than 400,000 people and was operating 2,293 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces, and Mexico.
In 2017, Home Depot committed to building about 150 new supply chain facilities worldwide (including three on the books in the Atlanta area in coming months). The new centers will help the company connect with contractors and developers in its Pro segment, which already generates 45% of the company's total sales alone just to contractors and developers.
After its stock price fell by more than half to about $140 a share in the spring, Home Depot is now trading at close to its 52-week high of $292.95 -- another testament to investor confidence in its resilience.
The Kroger Co. is the nation's largest supermarket chain, with nearly 2,800 grocery stores, 35 manufacturing plants, and 44 distribution centers across the country. The Cincinnati-based company also employs about 435,000 people, one of the largest private workforces in America.
Despite intense competition, the massive, venerable (founded by Barney Kroger in 1883) grocery chain is experiencing strong growth that is helping its stock outperform the market and beat rivals in short-term returns of late.
While its eponymous stores are the bulk of its business, Kroger also operates a number of other brand names in multiple supermarket, multi-department store, price-impact warehouse, and marketplace formats.
During the pandemic, the company saw its digital sales soar by 127% in the second quarter alone over last year, helped by services like Instacart, and second quarter 2020 operating profits rose 43% from second quarter 2019 to $894 million. Total company sales were $30.5 billion in the second quarter, compared to $28.2 billion for the same period last year. Excluding fuel, sales grew 13.9%.
Kroger stock is currently trading at about $33.49 a share, close to its 52-week high of $36.60 after only dipping by about $10 during the worst of the market sell off in April. Kroger also has increased its dividend by 13% already this year, marking the 14th consecutive year of dividend increases.
The Millionacres bottom line
Many major businesses can arguably be considered pandemic-resistant and recession-proof. These four examples show the attributes of these four that got them in this elite company in the first place and justify their place as tenants in CRE property, worth the investment now and going forward. In fact, their presence there makes those properties themselves worth consideration.