Costco profit just misses view

By Aarthi Sivaraman

NEW YORK (Reuters) - Costco Wholesale Corp (COST.O) posted a lower quarterly profit on Thursday that fell just short of Wall Street's expectations, as shoppers cut spending on discretionary items like clothes and jewelry.

Costco's sales have slipped recently as the economic slump douses demand for unnecessary items. Still, the No. 1 U.S. warehouse club chain has said it intends to keep prices low to win market share, even if that should crimp profits.

As the recession squeezes household budgets, consumers have focused more on buying only everyday items like food and toiletries.

That has helped warehouse clubs like Costco, Wal-Mart Stores Inc's (WMT.N) Sam's Club and BJ's Wholesale Club Inc (BJ.N) lure customers who want low prices on necessities.

The trend has also helped close-out retailer Big Lots Inc (BIG.N), which posted a better-than-expected quarterly profit and raised its full-year forecast, as it saw an unwavering demand for basic household items.

"Customer shopping patterns have likely changed, and discounts and saving money are likely here to stay," Big Lots' Chief Executive Steven Fishman said on a conference call.

But its shares fell 4 percent, as it forecast same-store sales for the second quarter would be down 1 percent to 3 percent.

COSTCO MISSES

In its latest quarter, Costco faced "ongoing weakness in sales, particularly sales of higher-ticket, discretionary items," CFO Richard Galanti said.

The company, shares of which fell 1.7 percent, did not provide a financial forecast for the current fourth quarter.

Galanti added that May sales would be "maybe a shade further negative" compared with April, after April was a little weaker than March. Costco is still seeing overall deflationary pressures and he did not predict when they would ease.

For warehouse clubs, lower gasoline prices are hurting comparisons from a year earlier, when high prices boosted sales at their gas stations. A stronger U.S. dollar has added to the pressure on Costco, hurting its international results.

Costco's profit fell to $209.6 million, or 48 cents a share, in the third quarter ended May 10 from $295.1 million, or 67 cents a share, a year earlier.

Excluding litigation costs, Costco's profit was 52 cents a share, a penny shy of the 53 cents that analysts on average were expecting, according to Reuters Estimates.

Quarterly sales fell about 5 percent to $15.48 billion, excluding membership fees, which dropped about 6 percent to $328.4 million.