Costco: Positive Pandemic Performance and Continued Financial Success?

Costco is a go-to for groceries, home goods, clothing and many other items. It has more than 800 stores and a loyal customer base that borders on a fandom in some cases. The company had a great year in 2020, posting revenue growth and earnings rates that were its highest in at least the past five years. But what pushed the club warehouse retailer to COVID-time success, and can investors expect the dollars to keep rolling in?

It's easy to see why Costco sales growth might have sped up early in the pandemic. Spurred on by media coverage of shortages and panic buying across the world, customers showed up to Costco to stack bulk items in carts. But those sales trends didn't slow down when the panic buying did.

One theory is that Costco is better positioned to ensure its products are in stock. Consumers that can't find what they need elsewhere can rest assured the desired item is at their favorite warehouse club store—as long as it's one of the roughly 4,000 items Costco carries.

Costco's saving grace during the pandemic may have been its buying power. It orders, on behalf of its hundreds of stores, a lot of goods. And because it limits its product lines, it orders a lot of certain types of goods from certain manufacturers. That makes Costco a whale of a contract, so manufacturers, shippers, and others may bump the warehouse giant's orders to the front of the line. It's a good position to be in when supply chain struggles are choking other retailers.

Will Costco continue to perform at the level it did in 2020 and early 2021? Analysts hedge their bets and say no. That's not to say that the retailer won't continue to demonstrate success. Loyal customers and big buying power do continue to matter.

However, the bets right now are that Costco's earnings increases will slow in the upcoming year. It may still make gains, but it will be running more the speed of a tortoise than a hare.