One of the big fears among investors right now is that the companies that performed particularly well during the more intense stages of the COVID-19 crisis won't be able to match their pandemic-fueled sales in its aftermath. Those tailwinds pushed these outperforming stocks to extreme highs last year after the March 2020 crash. Now, they are giving back a chunk of those gains.

Costco Wholesale (COST 1.68%) posted better-than-average sales growth throughout 2020. But even as the U.S. vaccination rate rises, the warehouse club retailer is not reverting to the single-digit percentage growth rates that it typically reported prior to the advent of COVID-19. For its fiscal 2021 third quarter, which ended May 9, Costco reported a 22% year-over-year sales increase. 

A family standing in front of their home with the father holding a brown grocery bag.

Image source: Getty Images.

More shopping in store, less online

The report, released on May 27, extended a streak of impressive quarters. Adjusted comparable sales increased 15.1% with a 12.5% increase in customer traffic. E-commerce sales, on the other hand, increased 38% (excluding foreign exchange). While still impressive, it was a deceleration from the 66% online growth in the prior-year period, as well as the intervening quarters. People are returning to stores more often and are less reliant on delivery. That may mean they're stocking up more when shopping in store. Investors should keep an eye on how that dynamic affects the company, but so far at least, Costco is benefiting from the resurgence of in-store shopping. 

Costco also became more profitable, in part because it had fewer pandemic-related expenses. COVID-19 costs shrank from $0.47 per share in the fiscal 2020 third quarter to $0.09 per share in this latest report, which helped earnings per share increase 46% year over year as a result.

As usual, membership renewal rates came in around 90%, and membership fees accounted for 2% of total revenue.

How long can Costco keep it up?

Sales growth above 20% is unusual for Costco, but this period of strength may not be over. Revenues from its ancillary businesses, which were running at low speed or completely closed during the pandemic, are creeping back up even as its core operation remains strong.

Inflation is also rearing its head. On the fiscal second-quarter conference call, CFO Richard Galanti estimated that inflation would have a 1% to 1.5% impact for this fiscal year, and during the third-quarter call, he more than doubled that forecast range to 2.5% to 3.5%. That may lead to some inflation for the company's fiscal fourth quarter as it raises prices.

A young boy on a shopping wagon going down a supermarket aisle.

Image source: Getty Images.

Despite the phenomenal report, Costco shares fell slightly immediately after the release. That reaction may have been due to the stock's high valuation -- over the past few months, it rose to nearly 40 times trailing earnings -- and a belief among investors that Costco won't be able to sustain its current momentum.

But the company's status as an essential retailer with affordable products means it is positioned to perform well under adverse circumstances, and that is how matters have played out. But don't look for decelerating growth just yet.

Further growth opportunities

Long-term growth opportunities exist for Costco, particularly in its store count. The company is set to open 21 new stores this year while aiming to add 20 to 25 in each of the next five years. Galanti said that the chain could support 35 new stores annually, but it likes to take it slow. That ensures continued, steady growth in the years to come.

The company opened its first store in China in Aug. 2019, and at the end of the fiscal third quarter, Galanti estimated there were 400,000 members for that location. The company's planning to open two more stores in that market over the next two years.

Ancillary businesses are still not operating at pre-pandemic levels, giving Costco another sales growth driver as the economy continues its recovery in the U.S. and other countries.

Take all that together, and it's clear Costco can keep up its stellar performance near term, leaving it stronger than ever for a post-pandemic environment.