UPDATE 3-BJ's Wholesale profit falls but beats Wall St view

* Q2 EPS 64 cents vs Wall St view 62 cents

* Q2 sales fall 5.2 pct

* Raises full-year profit outlook

* Shares up 0.2 pct
(Recasts first sentence, adds analyst comment, byline, changes
dateline previously BANGALORE)

By Nicole Maestri

SAN FRANCISCO, Aug 19 (Reuters) - BJ's Wholesale Club
BJ.N reported a smaller-than-expected decline in quarterly
profit on Wednesday and raised its full-year profit outlook,
helped by improved margins and expense controls.

But the No 3 U.S. warehouse club operator cut its sales
outlook for the year, citing falling prices for staple food
items like dairy and meat, and expectations that customer
spending will remain restrained through the Christmas season.

Cowen & Co analyst Laura Champine said BJ's lowered sales
forecast was to be expected. Grocery store chains like Safeway
Inc (SWY.N) and Supervalu Inc (SVU.N) have said in recent weeks
that deflation in food is taking a toll on sales.

"(BJ's) customers are still buying food, but not as much on
the discretionary items and there's no sign really of a pickup
there," Champine said.

BJ's shares rose 0.2 percent in morning trading, and
Champine said an increase in discretionary spending would be
needed to drive shares much higher.

BJ's profit for the second quarter that ended Aug. 1 fell
to $35.1 million, or 64 cents per share, from $36.5 million, or
61 cents per share, a year earlier.

Analysts on average had been expecting earnings of 62 cents
per share, according to Reuters Estimates.

As the recession pressures household budgets, warehouse
clubs such as Costco Wholesale Corp (COST.O), Wal-Mart Stores
Inc's (WMT.N) Sam's Club and BJ's Wholesale are attracting
shoppers seeking low prices on staple items, like bread and
paper towels.

People pay an annual fee to shop in the clubs and receive
discounts on everything from cartons of fresh fruit to flat
panel TVs and gasoline for their cars.

But the clubs are facing greater challenges compared with a
year ago when high gas prices and food inflation spurred their
sales.

BJ's second-quarter sales fell 5.2 percent to $2.5 billion,
while sales at its clubs open at least a year, or same-store
sales, dropped 7.7 percent.

Sales were strong in fresh meat, frozen food, household
cleaners, pet food and paper products, but weaker in clothing,
jewelry, and lawn and garden merchandise, it said.

"The consumer is still very robust when it comes to food
and consumables and very cautious when it comes to everything
else," CEO Laura Sen said on a conference call.

Sales in the quarter were hurt by cold, wet weather in the
Northeast, where many of its clubs are located, but BJ's said
sales in the first two weeks of August have improved.

Given deflation and the moderating sales trends it saw in
the second quarter, BJ's said it has become more cautious on
its sales view for the remainder of the year.

It now expects merchandise same-store sales in the second
half to rise 3.5 percent to 5.5 percent, compared with its
previous forecast for a gain of 5 to 7 percent.

For the third quarter, it forecast earnings of 43 to 47
cents per share, while analysts are expecting 44 cents. For the
fourth quarter, it expects earnings of 96 cents to $1 per
share, compared with Wall Street's view of 97 cents per share.

For the full year ending Jan. 30, 2010, it expects net
sales to rise 0.5 percent to 1.5 percent, compared with an
earlier view for a gain of 0.6 percent to 2.6 percent. It
forecast full-year earnings of $2.46 to $2.56 a share, up from
its prior outlook of about $2.44 to $2.54 a share.

Shares were up 7 cents at $31.39 in late morning New York
Stock Exchange trading.
(Additional reporting by Dhanya Skariachan in Bangalore;
Editing by Maureen Bavdek and Matthew Lewis)