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September 26, 2021

Costco (COST), home of the ultimate big box store, is not mincing words about what it's like to run a consumer business in the middle of a pandemic.

"Inflationary factors abound: higher labor costs, higher freight costs, higher transportation demand, along with container shortages and port delays, increased demand in certain product categories, various shortages of everything from computer chips to oils and chemicals, higher commodities prices," Chief Financial Officer Richard Galanti told analysts after markets closed Thursday. "It's a lot of fun right now."
Sure, "fun" is one word for it.



Performance
Costco managed to beat Wall Street's earnings expectations for its most recent quarter, sending shares up 0.8% in premarket trading. But the company made clear that the process of getting products on shelves to meet a jump in consumer demand remains a nightmare.

Furniture delays have doubled wait times for some products, forcing the company to stock up early. The circumstances are similar for toys, as well as electronics like computers, tablets, and video games. "We're ordering as much as we can and getting it in earlier," Galanti said.

Even so, supply chains are so badly tangled that the company said it has chartered three ocean vessels for the next year to transport containers between Asia and the United States and Canada. The complex network of ports, container vessels, and trucks that moves goods around the world is still badly clogged after falling out of sync last year, and the cost of shipping is skyrocketing. Steel containers have become incredibly scarce and extremely expensive.

The situation is so severe that bigger companies are attempting to take matters into their own hands (smaller businesses, meanwhile, don't have that luxury). Costco, which has leased several thousand containers to use on its chartered ships, said its fleet will make about 10 deliveries during 2022.



The strategy
Costco's strategy is spreading across the industry. Furniture giant Ikea has bought its own shipping containers to try to ease some logistical headaches. Walmart (WMT) has also chartered vessels to make sure it has enough stock for this year's holiday season.

Costco's business has been resilient despite its laundry list of supply chain woes and inflationary pressures. But not every company is weathering the storm as well. Nike (NKE) cut its full-year sales outlook on Thursday, even though executives said that "consumer demand has never been higher." Shares are down 5% in premarket trading on Friday.

"We are not immune to the global supply chain headwinds that are challenging the [manufacturing] and movement of product around the world," Chief Financial Officer Matthew Friend said on the company's earnings call.



Impact of Delta Variant
The effects of the Delta variant of the coronavirus are still playing out and could make matters worse. Costco said it was reimposing limits on buying toilet paper, water bottles, and cleaning products due to an "uptick in Delta-related demand."













SOURCE: CNN