* Sales, membership fees rise in second quarter * Analysts say Costco increased its market share * Shares up 1.4 percent By Dhanya Skariachan March 12 (Reuters) - Costco Wholesale Corp lured shoppers with low prices on everything from produce to gasoline in the latest quarter, gaining market share at a time when other retailers saw shoppers pull back due to higher taxes and rising fuel prices. A membership fee hike also helped the warehouse club discount retailer, which reported higher-than-expected fiscal second-quarter profit on Tuesday. Shares of Costco were up 1.4 percent at $103.82 in afternoon trade. Last year, the retailer paid out $3 billion in a special dividend ahead of expected dividend tax increases. Costco, which has gas stations at its stores, is willing to take a hit on margins to keep prices low so shoppers visit more often. It offers everyday items like bananas below supermarket prices, hoping customers will stock up on other goods as well. Members pay up to $110 per year to shop at Costco's cavernous stores and website, which sell items ranging from dog food to diamond rings. The fee revenue pads the bottom line, allowing the company to offer low prices and take in thin profit margins on products it sells. "The retailer's ability to keep members engaged and coming back for more is unparalleled," Planet Retail analyst Sandy Skrovan said, adding that Costco was outperforming its peers in terms of sales growth and productivity. Costco is the largest U.S. warehouse club chain and competes with BJ's Wholesale and Wal-Mart Stores Inc's Sam's Club. Last year, Costco retained the No. 1 spot among warehouse stores with a 46.5 percent share, compared to 38.4 percent for Sam's Club, according to Euromonitor International. Costco's market share grew from 2010 to 2012, a period when Sam's Club's share declined. Janney Capital Markets analyst David Strasser maintained his "buy" rating on Costco shares, saying Costco remained one of the most predictable retailers, with strong traffic growth and operating trends. "The machine, known as Costco, continues to gain market share and square footage growth," Strasser said. Last month, Wal-Mart's results showed U.S. consumers were worried about the impact of higher payroll taxes and gasoline prices, along with slow tax refunds that put some spending on hold. Costco, unlike some rivals, did not benefit when the United States lowered payroll taxes two percentage points two years ago and wasn't hurt when that tax holiday ended on Jan. 1, Chief Financial Officer Richard Galanti said on a conference call with analysts. "It can't help, but it doesn't seem to really be impacting our numbers," Galanti said. GASOLINE GAINS Costco's net income rose to $547 million, or $1.24 a share in the second quarter ended on Feb. 17 from $394 million, or 90 cents a share, a year earlier. Excluding a tax benefit from a special cash dividend, Costco earned $1.10 a share, beating the analysts' average estimate of $1.06, according to Thomson Reuters I/B/E/S. Sales rose 8 percent to $24.34 billion, while membership fees rose 15 percent to $528 million. Same-store sales, excluding fuel, were up 5 percent in the United States and up 4 percent internationally. The Issaquah, Washington-based company raised fees for most U.S. and Canadian members by 10 percent on Nov. 1, 2011. It previously said the fee increase seemed to have little to no effect on renewal rates. Shoppers also have been filling up tanks more often at Costco, which typically prices gasoline lower than nearby competing stations The company may have also benefited from redemptions of annual American Express rewards, which members received in February. Members who sign up for an American Express card through Costco earn cash back on eligible purchases, including what they buy at the chain. They can redeem or cash in their reward coupons at Costco stores through August. Costco has 622 warehouse stores around the world, including 448 in the United States and Puerto Rico.