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Costco expects supply chain constraints to continue into early 2021 – CFO

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Costco expects supply chain constraints to continue into early 2021 – CFO

Warehouse retailer Costco Wholesale Corp. expects to face continued supply chain issues until the early part of 2021 as demand soars for sought-after products amid the pandemic, CFO Richard Galanti during a Dec. 10 fiscal first-quarter conference call.

The low-frills warehouse club operator did not provide guidance for the upcoming quarters, but Galanti said the company is seeing "higher increases in demand" of some products including exercise equipment, certain major appliances, housewares and small electric items. "There are instances of 50% or 100% or even more sales increases of an item," he said. "And if we could procure more, we'd have even higher sales."

Galanti added there have been "container shortages at origin" as well as some congestion at destination ports in the U.S. "We're managing through it and expect relief not until March or so of 2021," he said.

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Galanti made the comments after Costco reported fiscal first-quarter diluted EPS and revenue that beat analysts' expectations.

Like many of the largest retailers, the pandemic has created a windfall for Costco, which reported that adjusted comparable e-commerce sales jumped 86.2% during its first quarter. Costco's online sales were driven by purchases in food and sundries, housewares, pharmacy, beauty aids, small electrics and TVs and other electronics, Galanti said. Total online grocery sales grew nearly 300%.

The company also incurred $212 million pretax in costs related to higher wages during the pandemic.

Galanti said Costco continues to see strong sales amid the pandemic. "As people are spending less on air and travel and hotel and dining out, they seem to have redirected some of those dollars to categories like electronics, furniture and mattresses, exercise equipment, housewares, cookware, domestics," he said.

Costco also benefited from consumers who purchased early in the holiday season, as some merchandise and sales "were pulled forward into November," he said.

In terms of holiday merchandise planning and results, Costco went into the Halloween buying season "a little more conservative in terms of costumes and Halloween-specific candy items," he said.

With Christmas, the company is preparing to stock shelves with more basic merchandise in terms of needs and uses for the home, Galanti said.

"We've gone into it on fundamental items from the home like housewares, TVs, electronics, even added items like barbecues and pressure washers and furniture items," Galanti said. "A little less, we had cut back a little bit on seasonal items like holiday decorations and gift wrap and some of the candy and food gift baskets. In some instances, we've already sold through those inventories."