UPDATE 4-Costco profit up 7 pct as shoppers seek deals

(Adds forecast, analyst comments; updates stock price)

NEW YORK, Oct 8 (Reuters) - Costco Wholesale Corp COST.O reported a nearly 7 percent rise in fourth-quarter profit on Wednesday as price-conscious shoppers headed to the retailer's warehouse club locations for bargains on food and gasoline.

Costco also said it was “comfortable” with analysts’ average estimate for its current fiscal first quarter, but it said full-year earnings could come in anywhere between $3 per share and $3.25 per share.

“We, like you, read the news every day, and we are approaching fiscal ‘09 very conservatively,” said Chief Financial Officer Richard Galanti on a conference call.

Costco's results came the same day that many major U.S. retail chains, like Target Corp TGT.N and J.C. Penney Co Inc JCP.N, posted disappointing September sales and warned of lower-than-expected quarterly profits. U.S. consumers, spooked by an expanding financial crisis, have shifted their habits and avoided spending on all but necessities.

But sales at Costco and rivals BJ's Wholesale Club Inc BJ.N and the Sam's Club unit of Wal-Mart Stores Inc's WMT.N largely outpaced those of other retailers, as the clubs lured shoppers with discounts on bulk items like fruit and cereal.

“The trend is to stay at home, eat at home and conserve money wherever possible,” said Ben Pivar, vice president at consulting firm Capgemini.

Costco’s net income rose to $397.8 million, or 90 cents per share, for the fiscal fourth quarter ended Aug. 31, up from $372.4 million, or 83 cents per share, a year earlier.

The latest quarter’s results included charges of 7 cents per share. Excluding a litigation charge, Costco earned 92 cents per share, which compares with analysts’ average estimate of 93 cents a share, according to Reuters Estimates.

Quarterly net sales rose 13 percent to $22.6 billion, excluding membership fees, which rose to $473.7 million from $388.2 million, the Issaquah, Washington-based company said.

Costco said sales in September at clubs open at least a year rose 7 percent. Analysts, on average, were expecting same-store sales to rise 7.5 percent.

In afternoon trading, shares rose 56 cents to $58.36.


Warehouse club operators have emerged as a relatively bright spot in the struggling U.S. retail sector.

Customers pay an annual fee to shop at Costco, which sells everything from TVs and toys to bulk-sized packages of paper towels. Costco also operates gasoline stations, typically offering prices cheaper than those of local competitors.

But it warned in July that quarterly profit would miss Wall Street’s estimate at the time of $1 per share, as soaring energy prices and inflationary pressures drove up the cost of doing business.

While Costco was paying more for the items it sold, it said it was not always immediately marking up prices. The tactic helped spur sales, but hurt margins.

“Management had signaled that margins would be weak when they pre-announced in late July -- they were right,” wrote Goldman Sachs analyst Adrianne Shapira in a research note.

While she said gross margins declined in the quarter, sales trends remained strong through September.

“What we like about the story is their share gain potential in today’s tough spending environment as consumers redirect a greater share of their wallet to Costco,” she wrote.

Same-store sales at its U.S. locations rose 8 percent in September, while international division sales rose 2 percent.

Excluding gasoline price inflation, it said U.S. comparable sales would have been up 6 percent. On a local currency basis, international same-store sales increased 8 percent, it said.


Galanti said he was “comfortable” with analysts’ current forecast for first-quarter earnings of 64 cents per share, although results could be in the range of 61 to 65 cents.

Forecasting full-year earnings was difficult, he said, given volatile gasoline prices. In September, the average sales price for a gallon of gas was up 31 percent from a year before.

Rapid increases in gasoline prices can hurt Costco, which replenishes its supplies of the fuel every day. By contrast, traditional gas stations may turn their inventory weekly, meaning they can be selling supplies they had bought when prices were lower.

While Galanti forecast earnings for the year of $3 to $3.25 per share, analysts expect full-year earnings per share of $3.25. For all of fiscal 2008 just ended, Costco earned $2.89 per share. (Additional reporting by Savio D’Souza in Bangalore; Editing by Gerald E. McCormick and Maureen Bavdek)