Costco, Dollar General sales up on bargain-hunting

NEW YORK (Reuters) - Costco Wholesale Corp (COST.O) and newly public discounter Dollar General Corp (DG.N) got a sales lift last quarter from bargain-seekers, but investors remain concerned about pricing pressure and competition.

Costco, the No. 1 U.S. warehouse club operator, said on Thursday that quarterly profit rose slightly on a jump in international sales and a weaker U.S. dollar.

Brian Sozzi of Wall Street Strategies noted the company's increase in membership fees and the improved state of its global customer base, but was concerned about lower gross margins.

Costco Chief Financial Officer Richard Galanti said on a conference call that gross margins had fallen 9 basis points to 10.88 percent.

That decline suggests "that competitive and deflationary pressures persist" for Costco, Lazard Capital Markets analyst Todd Slater wrote in a note.

Warehouse clubs like Costco, Sam's Club and BJ's Wholesale Club Inc BJ.N and discounters like Wal-Mart Stores Inc (WMT.N) and Dollar General have gained customers as shoppers seek out low prices on necessities like groceries or toiletries. Wal-Mart also owns Sam's Club.

But Costco, where shoppers pay an annual fee to buy in its stores, had previously said that its sales during the quarter were pressured by falling prices for food and electronics.

Costco's reported a profit for its fiscal first quarter ended November 22 of $266 million, or 60 cents per share, in line with analysts' expectations, according to Thomson Reuters I/B/E/S. That was an increase of 1.1 percent from the year-earlier $263 million, or 60 cents per share.

Costco's first-quarter sales rose 5.5 percent to $16.92 billion, excluding membership fees, which increased 5 percent to $377 million.

Sales at clubs open at least a year -- a key retail gauge known as same-store sales -- increased 3 percent companywide, including a 13 percent rise internationally and 1 percent in the United States.

Costco operates 566 warehouses worldwide, including 413 in the United States and Puerto Rico.

Shares of Costco were off 0.2 percent while Dollar General slipped 0.9 percent.

PENNY-PINCHERS LIFT DOLLAR GENERAL

Galanti said renewal rates were "solid," but fewer store openings put a crimp on signing up new members.

Costco is on pace to open 16 new stores this fiscal year, but as the economy improves it plans to open more. Galanti estimated new store openings would reach the "low-to-mid-20's" range in 2011.

Galanti was cautiously optimistic about the start of the current quarter, saying: "Going into Christmas, we feel good."

Dollar General, which prices most of its merchandise below $10, posted a profit versus a year-earlier loss as more customers went shopping at its stores and spent more per transaction.

In a conference call with analysts, Dollar General Chief Executive Officer Richard Dreiling said that the holiday season has gotten off to a solid start.

Dreiling said that Dollar General plans to continue its push in private brands next year, particularly for non-consumable goods. Currently, private label accounts for 21 percent of consumable goods.

Dollar General said profit for its fiscal third quarter ended October 30 was $75.6 million, or 24 cents per share, compared with a loss of $7.3 million, or 2 cents per share, a year earlier.

Analysts had expected earnings per share of 25 cents, according to Thomson Reuters I/B/E/S.

Sales rose 12.7 percent to $2.93 billion, while same-store sales rose 9.2 percent.

Private equity group Kohlberg Kravis Roberts & Co KKR.UL bought Dollar General in 2007 and took the retailer public in November. KKR still owns about 88 percent of Dollar General.

Dollar General, which operates about 8,700 stores in the United States, said it plans to open 600 new stores in 2010 and remodel or relocate about another 500 outlets.

(Reporting by Phil Wahba; additional reporting by A.Ananthalakshmi in Bangalore and Nicole Maestri in San Francisco; editing by John Wallace, Gerald E. McCormick)