UPDATE 2-Costco plans for 36 new stores, profit misses estimates

Wed Oct 9, 2013 1:11pm EDT

* Costco earnings per share $1.40 vs Wall Street view $1.46

* Costco Sept same-store sales rise 3 pct including fuel

* Family Dollar profit 86 cents/share; Street view 84 cents

* Family Dollar same-store sales flat vs forecast up 2 pct

* Costco shares up, Family Dollar down 2.6 pct

By Jessica Wohl

Oct 9 (Reuters) - Costco Wholesale Corp investors shrugged off a weaker-than-expected 1.3 percent rise in quarterly profit as the warehouse chain announced plans to open 36 new clubs this fiscal year, including its first two locations in Spain.

Costco shares, which trade at a premium to many other mainstream retailers, were more than 2 percent higher on the Nasdaq at $114.70 at midday on Wednesday after closing at $112.21 on Tuesday.

Discount chain Family Dollar Stores Inc said it was taking a cautious approach to 2014 as its shoppers focused on basics. Its sales missed expectations and it relied on cost cutting to deliver a better-than-expected profit. Family Dollar shares were down 2.3 percent to $67.81.

Costco and Family Dollar typically cater to different shoppers. Costco's U.S. household and business members pay fees of up to $110 per year to shop at its clubs and online. Family Dollar says that more than half of its customers are on some form of government assistance.

Both companies are feeling a little pressure from the U.S. government shutdown. Costco has seen a "downward" effect in the Washington, D.C., area, but not overall, Chief Financial Officer Richard Galanti said on a conference call.

Family Dollar Chief Executive Howard Levine said he thinks the confidence of his chain's shoppers was affected by the threat of the shutdown, uncertainty regarding some government assistance many depend on, as well as uncertainty in the job market and other issues.

The company reported adjusted earnings per share of 86 cents, exceeding the average estimate of analysts of 84 cents, according to Thomson Reuters I/B/E/S. Sales rose 5.8 percent to $2.5 billion, missing analysts' expectations of $2.56 billion.

PROFIT UP MODESTLY

Costco earned $617 million, or $1.40 per share, in the 16-week fourth quarter ended Sept. 1, compared with $609 million, or $1.39 per share, in the 17-week period a year earlier. Analysts, on average, were looking for it to earn $1.46 per share, according to Thomson Reuters I/B/E/S.

Costs rose 0.8 percent to $31.5 billion, including a 1.8 percent rise in selling, general and administrative (SG&A) expenses. Some of the costs included spending on technology and higher outlays for benefits and workers' compensation.

Sterne Agee & Leach analyst Charles Grom did not expect the stock to get hit hard because most of the miss was the result of the higher expenses.

Costco trades at roughly 22 times expected earnings, well above the multiples for competitors such as Wal-Mart Stores Inc and Target Corp, which trade near 13 times expected profit, according to Thomson Reuters data. Family Dollar trades at about 17 times expected earnings.

Costco has roughly 637 clubs now and said it plans to open 36 clubs this year, although some could be delayed. Eighteen openings are planned for the United States, seven in Asia and two will be in Spain, a new country for the company. Costco opened 26 clubs in fiscal 2013 and 16 in fiscal 2012.

Costco, whose warehouse competitors include Wal-Mart's Sam's Club and private chain BJ's Wholesale Club Inc, charges annual fees to shop at its stores, which stock everything from onions to computers. It typically prices gasoline at or below prices offered at nearby stations.

Total revenue, including membership fees, rose 0.8 percent to $32.49 billion. Same-store sales rose 5 percent.

Analysts on average had expected earnings of $1.46 per share, excluding one-time items, on sales of $32.82 billion.

Costco said September sales at stores open at least a year, or same-store sales, rose 3 percent, including the impact of fuel prices and foreign exchange. Analysts on average had expected a rise of 3.7 percent.

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