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ISSAQUAH, WA-Costco Wholesale Corp. posted a lower-than-expected profit Tuesday after reducing prices in its fiscal second quarter to drive sales and increase market share. Earnings also were hurt domestically by lower gasoline prices and internationally by the strengthening dollar. On the development front, the No. 1 warehouse club in the US opened no new stores in the second quarter but has since opened three new locations, giving it 553 stores worldwide.

Costco achieved a profit of $239.7 million ($0.55 per share), for the quarter ended February 15, down about $90 million from $327.9 million ($0.74 per share) a year earlier. Analysts’ average expectation was for earnings of approximately $0.60 per share, which was reduced last month after Costco warned that its results would be “substantially below” $0.70 cents a share as a result of its price reduction.

Costco’s quarterly sales fell 1% to $16.49 billion while membership fees gained 4% to $355.6 million. Sales at clubs open at least a year, a key retail gauge known as same-store sales, fell 3%. Peering into its third fiscal quarter, Costco also said Tuesday that its same-store sales in February also were down by 3%, 30 basis points more than analysts had expected. Other major US retailers also are expected to report February sales this week; excluding Walmart, the industry average is expected to be a 4.8% drop.

“Both total sales and comp sales were significantly impacted by both gasoline price deflation and by the strengthening in the US dollar,” Costco EVP/CFO Richard Galanti told analysts Wednesday, explaining that overall quarterly sales actually rose 4% excepting gas sales and same-store sales rose 5% excepting gas sales as well as the cost of exchanging international dollars into US dollars. Looking just at February, Galanti said the overall comp is -3% but is +5% excluding gas sales.

JP Morgan analyst Charles Grom told clients that Costco continues to generate strong sales (led by traffic) as consumers continue patronizing the warehouse clubs in order to consolidate trips, purchase in bulk and obtain lower gas prices. On the negative side, the company appears to be focused more on preserving market share than driving margins, which could hurt earnings growth, he wrote.

While Costco opened no new stores in the second quarter it opened eight in the first quarter and has opened three in the first few weeks of the current quarter. Those new stores include Costco warehouses in Lakewood, CA and Honolulu, HI, and Costco Business Center in Las Vegas, its seventh business center to date.

Costco’s smaller competitor BJ’s Wholesale Club posted higher than expected profit growth. BJ’s posted earnings of $52.7 million ($0.91 per share) for its fiscal fourth quarter ended January 31, up about $2.5 million or 5% from $50.2 million ($0.80 per share) in the same year-earlier period. Excluding a one-time gain earnings were $0.89 per share, a few cents above analysts’ average expectation.

The Natick, MA-based No. 3 warehouse club told analysts on Wednesday that it won market share from supermarkets and restaurants over the last year with its fresh food and prepared meals. Food sales jumped 11% in the quarter while non-food sales were flat.

“There was an unfavorable mix of sales with our general merchandise department; we had strong sales in lower margin categories such as computers and video games, and weak sales in high margin categories such as apparel and jewelry,” CFO Frank Forward told analysts. “And the weak economy led to a very promotional holiday season and we took higher levels of markdowns as compared to last year. The good news here, though, is that we ended Q4 with a very clean inventory and see no further markdown exposure.”

BJ’s currently runs 180 BJ’s Wholesale clubs in 15 states and plans to open six to eight new stores in 2009, which would be a few more than it opened in 2008. Three of the clubs–in Pelham Manor, NY; North Bergen, NJ; and Clermont, FL–are scheduled to open in the first half of the year.

When asked about “flexibility” in the number of stores it might open in the second half of the year, company president/COO Laura Sen said the company is trying to open as many as it can. “We’re not trying to hold off in any way, if that’s the question,” she said. “We believe that there may be more real estate opportunities out there and, as they come up, we’ll try and choose those that will be most productive for us. But we’re not looking to back-off of anything we’re doing.”

Costco shares finished the trading day up $0.12 to $40.81 after ranging between $40.15 and $41.90 on more than double average volume. BJ’s finished the trading day up 7.2% to $29.42 after ranging between $28.85 and $30.25 on more than double average volume.

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