Costco stock falls on profit forecast

Costco, the largest U.S. warehouse-club chain, fell the most in almost five years in Nasdaq trading after saying fourth-quarter profit would be “well below” analysts' estimates because of energy costs.

Earnings for the quarter will miss the $1-a-share consensus estimate of analysts surveyed by First Call, Costco Wholesale Corp. said Wednesday in a statement. Analysts polled by Bloomberg also predicted $1 profit excluding one-time items.

The chain said it had to pay more to buy gasoline for its stations and for transporting goods.

Chief Financial Officer Richard Galanti said on a call with investors that, while he wouldn't “quantify what the term ‘well below' means, clearly it's more than the perhaps 5 or so cents that I had tried to suggest” earlier.

The forecast is the first sign that Costco – which has two locations in Mecklenburg County – is feeling some of the effects of soaring fuel and food costs that have prompted U.S. consumers to limit spending.

Sales at Costco, Wal-Mart Stores and BJ's Wholesale Club benefited from more people seeking lower-priced products as the U.S. economy slowed.

Costco is “consciously holding” prices on key items to retail customers and to compete with “very tough” Wal-Mart and its Sam's Club warehouse-club division, Galanti said. Delaying increases “helps and strengthens our business for the longer term,” he said.

Patricia Edwards, a portfolio manager at Wentworth, Hauser & Violich in Seattle, said price is the focus for the Issaquah, Wash.-based company.

“They are being fiercely competitive with Wal-Mart on this one,” said Edwards, who helps manage $15 billion in assets including Costco shares. “And they will not be the first one to break on price.”

Sales at stores open at least a year climbed 9 percent last month as more people shopped at Costco locations, buying groceries in bulk and gasoline, the company said July 10.

Costco fell $8.57, or 12 percent, to $63.43 in Nasdaq Stock Market composite trading Wednesday, the biggest one-day decline since August 2003. Before today, the shares rose 3.2 percent this year.

The fuel-shop unit will suffer a “negative swing” in profit, Galanti said in the statement. Costco runs 537 warehouses, with 393 in the U.S. and Puerto Rico.

Many locations have gas stations, and the retailer surveys local fuel stations to match or beat their prices.

Costco's forecast also sent shares of the second- and third-biggest warehouse clubs lower.

Wal-Mart, the Bentonville, Ark.-based owner of Sam's Club, fell 97 cents, or 1.6 percent, to $58.09 in New York Stock Exchange composite trading.

BJ's of Natick, Mass., lost 9.5 percent to $36.89. Sam's Club, the second-largest warehouse club, and BJ's both sell gasoline.

Costco also said it will repurchase an extra $1 billion of its stock, adding to the $5.8 billion previously authorized by its board.