Costco warns on profit, stock tumbles

By Nicole Maestri

NEW YORK (Reuters) - Costco Wholesale Corp warned on Wednesday that its quarterly profit would miss current Wall Street targets because of soaring energy costs and other inflationary pressures, sending shares of the No. 1 U.S. warehouse club operator down as much as 13.5 percent.

The warning sparked fears that competitors like Wal-Mart Stores Inc and BJ's Wholesale Club, which have been standouts in a struggling U.S. retail sector, could be facing similar woes. Shares of those companies also fell.

Despite inflationary pressures, Costco said it has delayed passing along price increases to shoppers to boost its sales and appeal to cash-strapped consumers.

"It is times like this, painful as it may be, that holding off on price-increasing certain key items, by even a few weeks, we believe helps and strengthens our business for the longer term," Chief Financial Officer Richard Galanti said on a conference call with analysts.

Costco said it expects earnings for the fourth quarter ending August 31 to be "well below" analysts' current forecast of $1 per share due to a higher-than-expected charge for inventory, declining profits in its gasoline business and lower merchandise margins.

"If Costco is not going to raise prices, they're going to go after share even more aggressively," said Telsey Advisory Group retail analyst Joseph Feldman. "I'd be afraid if I was competing with Costco on any product."

TROLLING FOR DISCOUNTS

Customers pay an annual fee to shop in Costco's clubs, which sell everything from discounted computers and fresh foods to bulk-sized packages of paper towels. The company also operates gasoline stations at many of its locations, typically offering prices cheaper than those of local competitors.