TJX, Costco best positioned to buy competitors

NEW YORK (Reuters) - Discount retailers, including TJX Companies Inc (TJX.N: Quote, Profile, Research, Stock Buzz), are best positioned to buy distressed competitors, assume leases or expand into new concepts as the weakening economy takes its toll on several troubled retail companies, said Hilco's Nina Kampler on Wednesday.

"TJX is great, Burlington Coat is great, Costco Wholesale Corp (COST.O: Quote, Profile, Research, Stock Buzz)is great," said Kampler, an executive vice president in liquidator Hilco's real estate division. "These retailers that I'm naming are an example of the value retailers who are in a position to assume some of these more distressed, troubled retailers and perhaps they become part of their different concepts.". . . more

Club Memberships Growing

Sam’s, Costco have enjoyed a rise in traffic, especially among high-income shoppers

According to figures recently released by Mediamark Research Inc. (New York), the number of shoppers visiting club stores like Sam’s Club (Bentonville, Ark.) and Costco Wholesale Corp. (Issaquah, Wash.) grew three times as fast over the previous two years as the adult population of the United States.

The market research company, which asked about 26,000 adults whether they had visited a club store within the preceding six months, said the gain (between September 2006 and April 2008) was particularly significant among shoppers with household incomes above $75,000. Club stores had an 11.9 percent jump among those shoppers, who now make up just under half of their visitors, according to the Mediamark figures.

“My guess is that lower-income people were already shopping at club stores, and the economy has made people who are more affluent shop there, too,” said Mediamark president Kathi Love.

Last week, Costco was presented with the 2008 VMSD/Peter Glen Retailer of the Year Award at the International Retail Design Conference in Seattle.

Source: VMSD.com

Discount stores score big in August

Consumers flock to low-cost stores such as Wal-Mart, Costco and BJ's in back-to-school season, abandoning higher-end retailers such as Abercrombie, The Gap, Limited.

NEW YORK (CNNMoney.com) -- Consumers nervous about the weak economy abandoned higher-end clothing store chains for discount retail giants such as Wal-Mart, Costco and BJ's, which reaped back-to-school sales in August.

"Americans haven't slowed their spending," said Ken Brown, president and retail analyst with ResearchConnect.com. "They just moved their spending, from some of the retailers with bigger-ticket items to the discounters."

That was why the August same-store sales for Wal-Mart, BJ's and Costco increased and trounced analysts expectations, while sales plunged for Abercrombie & Fitch and The Gap, experts said.

"This is Wal-Mart's year to eat share," said Dean Hillier, retail expert with management consultant firm A.T. Kearney.

The discount stores
Discount stores tend to thrive in a weak economy, because many consumers perceive low-cost retailers as the best places to stretch their dollars in purchasing necessities. Some analysts had expected - incorrectly, it turned out - that discount retailers would experience a softening in sales as the government-issued stimulus payments that came out in the spring and summer dried up.

Wal-Mart (WMT, Fortune 500), the leading retailer in the world in terms of annual sales, said Thursday that sales at stores open at least one year increased 3% during the four weeks ended Aug. 29, compared to the same period last year. The figure didnot include fuel sales.

A consensus of analysts interviewed by Thomson Reuters had expected a gain of 1.6%.

"Quite honestly, I think their brand is a comfort zone for consumers during bad economic times," said Hillier. "They're the trusted brand in uncertain times."

Wal-Mart, the biggest food retailer in the world, attributed the gain to strong sales in groceries and "health and wellness" products. The company also was lifted by back-to-school sales, and said that sales in certain electronics - such as flatscreen TVs, cell phones and GPS units - continued to do well.

Wal-Mart's U.S. sales, not counting its Sam's Club division and fuel sales, rose 2.8% in August, compared to the same period last year. Analyst consensus from Thomson Reuters had expected a gain of 1.4%.

BJ's Wholesale Club (BJ, Fortune 500) said Thursday that same-store sales jumped 15.4% in August, lifted largely by rising gas sales from inflation. BJ's beat analyst expectations of a 14.1% gain, according to a consensus of projections compiled by Thomson Reuters.

But even without gas, BJ's outperformed higher-end retailers with a same-store sales gain of 8%, matching the consensus projection from analysts. The company said that food was among its biggest sellers, with an 11% gain in sales of perishable foods.

Costco Wholesale (COST, Fortune 500), another top low-income merchant, reported Wednesday that same-store sales jumped 9% in August, compared to the same period last year. But the company still fell short of a consensus of analysts pooled by Thomson Reuters, who had expected a gain of 9.9%.

Costco said that its sales gain was bolstered by the 40% surge in the price of gasoline. Without gas, Costco said same-store sales rose 6%.

Higher-end retailers
August is generally a good month for retail sales, as parents and college students stock up on clothing and supplies before the start of the school year. But these shoppers stayed away from retailers of higher-end clothes, according to analysts, who noted that many consumers are simply continuing to wear the clothes that they own.

The Gap (GPS, Fortune 500), which owns Old Navy and Banana Republic, said that same-store sales fell 8% in August. This was much worse than the 1% decline experienced in August 2007, but it wasn't quite as bad as the 9.7% decline expected by a consensus of analysts surveyed by Thomson Reuters.

The worst-performing part of its business with Banana Republic North America, with a 14% plunge.

"I don't see those guys coming back any time soon," said Brown of ResearchConnect.com, referring to The Gap and other clothing retailers.

Abercrombie & Fitch (ANF) said same-store sales fell 11% in August, which wasn't as bad as the 7.9% projected by analyst consensus from Thomson Reuters. Limited Brands (LTD, Fortune 500), owner of Victoria's Secret and Bath & Body Works, reported that same-store sales fell 7% in August, slightly worse than the 6.9% decline projected by analysts.

Stimulus checks, back to school to aid retailers' July

NEW YORK (MarketWatch) -- Retailers' sales are expected to continue to get some lift in July from the last batch of the U.S. government's stimulus checks was mailed and back-to-school purchases increased by aggressive promotions.

U.S. retailers' sales at stores open at least a year in July are expected to rise 2.2%, its fourth straight monthly gain when companies report Thursday, according to a survey of analysts by Thomson Reuters. The gain, pales against a 2.9% growth rate a year earlier as the U.S. economy softened the past year.

Same-store sales are a key retail performance benchmark, because they exclude sales from new and recently closed locations.

The U.S. government's $100 billion-plus in stimulus checks have helped sales in the past three months. Demand also was lifted by clearance sales and other promotions; tax-free holidays in states such as Virginia; and by warmer weather that lifted demand for such items as T-shirts and shorts.

Still, while sales are expected to see a lift, analysts said concerns linger regarding the outlook for the rest of the year, especially after back-to-school shopping is completed in September. Gasoline prices have pulled back, but still are near a record high level that's changed U.S. consumers' shopping patterns and led them to reduce trips to malls and consolidate purchases in one-stop trips.

"Back-to-school happens every year and parents are budgeted for it," said Jharonne Martis, an analyst at Thomson Reuters. "After August there is no back-to-school or rebate checks to boost consumer spending. We will see then how robust the U.S. consumer can be."

Value-oriented retailers in their respective segments, from discounter Wal-Mart Stores Inc. and wholesale club Costco Wholesale Corp. to off-price retailer Ross Stores Inc. and teen retailer Aeropostale Inc. are expected to outperform in their respective segments, analysts said.

Department stores and specialty apparel retailers that sell more discretionary merchandise will continue to be laggards as penny-pinched consumers cut back on clothing and accessories purchases in the face of rising food costs and other economic malaise, analysts said.

While retailers market graphic prints and skinny jeans to excite shoppers, the apparel retailers in general have suffered from lack of a major must-have fashion item, analysts said. To spur shoppers, retailers such as J.C. Penney Co. launched exclusives with designer tie-ups such as Kimora Lee Simmons' Fabulosity. They also have touted value, started their back-to-school season earlier or signed special partnerships on a nationwide scale to draw demand.

"It's a tale of two retail worlds, Wal-Mart and everyone else," said Michael Niemira, chief economist of International Council of Shopping Centers. "Everyone else' is still struggling with the economic environment." Wal-Mart, with its "Save Money. Live Better" tagline, has outperformed its chief discount rival Target Corp. It in July raised its profit forecast after reporting better than June sales at both its namesake and Sam's Club chains. While Wal-Mart expects July sales to rise between 2% and 4%, Target sees its July sales in the range of minus 1% to plus 1%.

While discounters and wholesale clubs are expected to fare better, they also are not excluded from the dilemma retailers face of whether to raise prices to offset rising costs or risk losing market share. Costco, which has been a beneficiary of shoppers making one-stop trips to purchase bulk items at lower prices, in late July warned that its fourth-quarter profit would miss analysts' estimates, hurt by its strategy to hold prices in check to lure shoppers in the face of rising energy and other commodity costs.

Source: MarketWatch.com

Costco Proposed For Upper West Side

New Yorkers Seem To Like Idea, Which Is In Early StagesNEW YORK (CBS) ― Is Costco about to go cosmo?

One of the biggest of the big box stores may be coming to Manhattan. There's talk of putting a new Costco store on the Upper West Side.

CBS 2 HD spoke to New Yorkers on Tuesday to find out what they thought of the idea.

"Well that's great," one person said. "Sounds good."

It's the gigantic store featuring endless inventory and discount deals. Now, it's potentially coming to Gotham.

"I think, potentially, it could be good," one woman said. "Could drive a lot of business to this neighborhood."

A developer is reportedly in talks with Costco to bring a supersize store to the Riverside South area by the West Side Highway, between 59th and 61st streets.

But not everyone's thrilled.

"This is not a good location for Costco," said NYC Councilwoman Gale Brewer, D-Manhattan.

Brewer is worried about the noise and traffic the store would bring.

"The traffic is always so intensive and this would exasperate the traffic situation ... because you need a car to take home all that toilet paper," Brewer said.

In Long Island City, where Costco has a huge store, residents say its impact has been mostly positive.

"It's good to have it here," one resident said. "It helps out a lot of people here."

But the proposed project is still being called a work in progress, with public hearings in the community to be scheduled if and when the plan goes forward.

Source: WCBSTV.com

Costco warns on profit, stock tumbles

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.

Costco and rivals like Wal-Mart's Sam's Club and BJ's have been seen as bright spots in the struggling retail sector, as shoppers, worried about the weakening U.S. economy, increasingly seek out deals in the clubs.

The trend has spurred sales gains. In June, Costco posted a 9 percent rise in sales at stores open a least a year, while BJ's, the third-largest U.S. warehouse club, had a 16.5 percent sales jump on that basis. Comparable-club sales at Sam's Club, which ranks second, rose 8.3 percent.

But some of those gains are being driven by inflation, like higher transportation costs, which is increasing the price of the goods retailers sell.

Rising energy costs are "impacting the direct cost of merchandise frankly at a faster and higher rate of increase in the past six to eight weeks than before," Galanti said.

While Costco is paying more for the items it sells in its stores, Galanti said it is not always immediately marking up prices. "We will always strive to be the last to raise the price of merchandise to our members."

MARGIN PRESSURE

While Costco's margins are being pressured by its decision to delay implementing higher prices, they are also being hit by the recent run-up in gas prices.

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.

So far in Costco's fourth quarter, the national average retail price for gasoline has risen to $4.06 a gallon from roughly $3.10 in mid-May, according to data from the U.S. Energy Information Administration.

Costco said profit in its gasoline operations had fallen from a year earlier.

The company also declared a quarterly cash dividend of 16 cents a share on its common stock and said its board had approved a buyback of common shares worth up to $1 billion.

This stock repurchase is in addition to the aggregate $5.8 billion amount previously authorized by the board, it said.

Costco shares, which had risen almost 18 percent in the past year, were down 11.9 percent at $63.40 in midday trading after falling to $62.31. BJ's shares fell 9.5 percent and Wal-Mart declined by 3.1 percent.

Source: Reuters

Target, Best Buy Debut at $400M Center

Stafford Park

STAFFORD TWP., NJ-Two major tenants at the $400 million Stafford Park here are scheduled to open their doors by the end of the month. Target will debut a 137,000-sf space and Best Buy will operate out of 30,162 sf. It is the first store in the Stafford Township market for both retailers.

The two stores join Costco, which opened last month. Costco and Target will anchor the 650,000-sf retail portion of the mixed-use development, which will consist of retail, residential and office space. Fellow retail tenants include Dick’s and PetSmart. According to Ed Walters, founder and partner of the Walters Group--the company developing the site--leases are also being negotiated with Vitamin Shoppe, Longhorn Steakhouse and T-Mobile.

Source: GlobeSt.

Construction of the Target building began in September 2007, and ground was broken on the 100,000 sf building that will house Best Buy, Dick’s and PetSmart in January of this year. Construction was preceded by a $31 million cleanup of the 370-acre site, where two landfills once stood.

"What we’re doing here is we’re bringing Target, Costco, Dick’s and Petsmart to o

Costco 3rd-period net up 32%, sales up 13%, same-store up 8%

Costco Wholesale Corp., (COST) Issaquah, Wash., the largest U.S. warehouse retailer, reported fiscal third-quarter net income rose a stronger-than-expected 32% on 13% higher total sales and 8% higher same-store sales. For the quarter ended May 11, earnings reached $295.1 million, or 67 cents a share, from $224 million, or 49 cents, in the year-earlier period. Sales increased to $16.26 billion from from $14.34 billion. A survey of analysts by FactSet Research produced consensus estimates of 65 cents of profit on $16.32 billion of sales. Same-store sales, those from outlets open at least a year to eliminate the effects of new and divested stores, rose 6% in the U.S. and 16% internationally, Costco reported on Thursday. Revenue, which includes membership fees, rose 13% to $16.61 billion. Costco had said that a higher reserve for returns would hurt sales; excluding that higher reserve, total sales rose 12%. Excluding gasoline-price inflation, U.S. same-store sales rose 4%. Neutralizing the effects of stronger currencies, especially the Canadian dollar, international same-store sales rose 6%. Costco operates 538 warehouses, including 394 in the U.S. and Puerto Rico, 75 in Canada, 19 in the U.K., six in Korea, five in Taiwan, eight in Japan and 31 in Mexico.

Source: MarketWatch

Big-box retailers undaunted by slow economy

LOS ANGELES (MarketWatch) -- Can big-box retailers keep growing briskly, given the current downturn in the economy? For the most part, yes, but it depends on what's inside the box.

While a select few retailing giants -- namely home-improvement retailers -- have had to curtail expansion plans, others are continuing as if recession talk is nothing more than idle chatter.

Companies like Target Corp. , Costco Wholesale Corp. and Best Buy Co. are carrying on with expansion plans at virtually the same pace as in years past.

"We continue to look at a standard of 100 net new stores a year," Target spokeswoman Anna Goeppinger said. In fact, Target's rate of expansion has quickened, as it built 118 new stores last year and is on pace for 116 this year. In 2005 and 2006, the company added 86 and 88 new stores, respectively.

For the most part, today's retail giants don't suffer in the same way that most retailers do when gasoline prices climb and pocketbooks get pinched. While they may make adjustments, they're big enough to absorb the shock, according to industry experts.

"They really are looking through the economic time because their stores will open after the bad economic times have passed," said Jim McComb, president of retail consultancy McComb Group based in Minneapolis, home to Best Buy and Target headquarters.

The biggest box of all, Wal-Mart Stores Inc. , is curtailing its expansion efforts, although company executives insist that it's not recession-related. The world's biggest retailer is beginning to saturate the North American market, so now it's looking to grow more quickly overseas.

Wal-Mart said as recently as October that it plans to completely phase out new construction of its conventional outlets by fiscal 2009 in favor of its grocery/discount-goods supercenter stores. Development of all new Wal-Mart outlets, including Sam's Club and its group of neighborhood markets, will eventually be cut to 190 by fiscal 2010, down from the 340 new locations that were opened last year.

The subsiding-expansion plans were formulated several years ago and there are no plans to alter them, said Wal-Mart spokesman Phillip Keene, even though economic conditions have worsened since they were outlined six months ago. In fact, the company is stepping up its international expansion efforts at a fairly brisk clip. "There's been no change from this outline," Keene added.

Home-improvement blues

That hasn't been the case with two major big-box home improvement retailers. Home Depot Inc. and Lowe's Cos. are feeling the pinch as the real-estate market drops and new-home building subsides.

Last month, Home Depot scrapped plans to put its first-ever store in San Francisco despite wrangling with reluctant city officials for nearly a decade. In 2005, the city's Board of Supervisors had approved the construction of a Home Depot, but the company backed off in light of rough economic conditions.

"We evaluated the deal and found that it no longer worked for us," said Home Depot spokeswoman Sarah Molinari.

Home Depot has curtailed much of its new-store building throughout North America, cutting back to 55 new stores this year from 100 last year. Capital-expenditure spending will be down 32% from a year ago, to $2.3 billion.

The company is looking to spruce up its existing stores and find ways to improve service, as well as invest in its supply chain, according to Molinari. She also said that much of the curtailing in Home Depot's expansion activity is that like Wal-Mart, the company is reaching market saturation.

At one point, Home Depot was building 200 new stores a year, Molinari elaborated.

That kind of pulse-quickening expansion is unlikely to return, it appears. "I just don't think we're at that point in our business. I think we're past that point," she added.

Lowe's, on the other hand, still is growing rapidly, though it has delayed the opening of 20 new outlets this year in markets where the housing crunch is acute, said spokeswoman Chris Ahearn. Most of the delays are in California and Florida markets.

The company still plans to open 120 other stores, she noted. Lowe's would not reveal precisely where it is holding off on construction. "Again, they're delays. We're not canceling stores," Ahearn said. "We still have an aggressive expansion plan."

Markets that didn't experience a massive housing bubble, such as Texas and Oklahoma, are still ripe for new properties. Lowe's has 1,525 outlets in all.

Urban problem

Home Depot's San Francisco experience exemplifies the dilemma now faced by home-improvement centers. Buying or leasing land in pricey urban areas will cut deeply into their return on investment, said Craig Johnson, president of Customer Growth Partners, a retail consultant.

When economic conditions weaken, that takes a lot of steam out of a Home Depot or Lowe's that is looking to venture outside its comfort zone of suburban strip malls.

"Even in good times, it's a reach," Johnson added.

Companies that seem to be clinging to good times are Best Buy, Costco and Target. Best Buy said that it could stand to build another 500 stores in its various markets, so it plans to open 130 to 160 of them over the next fiscal year. That's about the same pace at which Best Buy has grown over the past several years, according to company spokeswoman Sue Busch.

Best Buy is hoping to use the current economic situation to its advantage and to expand its market share as some of its rivals retreat. "Right now, this is where the focus is," Busch said.

Its main competitor, Circuit City Stores Inc., has seen its stock price tumble, and it has become a takeover target for Blockbuster Inc.

"Smart retailers will use down markets as the most cost-effective time to build market share," Johnson commented. "I think Best Buy is doing a very good job of this."

The same goes for Costco, Johnson said. The membership-warehouse retailer may be seeing its nonfood sales drop, but its food and low-price gasoline have grown more attractive to consumers.

The company plans to open 30 to 35 new units this year and to relocate 10 more stores, spokesman Bob Nelson said.

Costco should continue on that pace in the foreseeable future. "We have no plans to curtail next year," he added. "We're cautiously optimistic that things are going to get better."

Source: MarketWatch.com

DC: Costco site in Pentagon City gets long-awaited redo

As condominium complexes and other high-rise structures rose around it through the years, the Costco site in Pentagon City became affectionately known as the hole in the neighborhood's doughnut.

The filling could finally be on the way.

New York-based Kimco Realty Corp. and DRA Advisors LLC plan to start site work later this year on a pair of office projects -- a 20-story building and a companion of eight stories -- on what is now the parking lot of Costco's big-box discount warehouse on South Fern Street.

The smaller building, with 125,000 square feet, would come first. Construction won't begin on the larger building, expected to be 333,000 square feet, without a substantial pre-lease agreement, but the project's backers do not think they will have trouble finding eager parties to fill the space.

The site is across the street from the Pentagon City Metro station, retail complex Pentagon Row and a mall, the Fashion Centre at Pentagon City.

"This is truly an underutilized site," said Bill Brown, Kimco's senior vice president of redevelopment.

"When you look at the amenities and the proximity to Metro, the regional mall and the Pentagon, it's all there."

Kimco and DRA control the Costco property and a neighboring retail complex that houses Best Buy, Marshall's, Linens 'n Things and Borders. Those stores will not disappear as part of the project, but the long-term plan for the site could involve the redevelopment of the buildings into a 250-room hotel and up to 800 residential units.

An application winding its way through Arlington County would keep those proposals in place for the time when the retailers decide to end their leases. Costco could stay for an additional 40 years, and the other retailers have lease options to remain on the site for 20 more years, Brown said.

The residential and hotel "part of the project is a long way off," he said, "but if this gets approved now, it won't inhibit the long-range plan. The county wants to make sure it is not nearsighted on the development of the rest of the site."

Arlington's development plan for Pentagon City was laid out in the mid-1970s. Most of the properties surrounding the Costco site have since shed an old industrial zoning classification for a mix of commercial, retail and residential uses.

Across from the Kimco property, for example, McLean-based Kettler is in the midst of a $1.2 billion project that will eventually bring 3,200 residential units to a block that once held a row of warehouses.

The Costco site wasn't developed until 1994 and, despite its low-rise stature, hasn't diminished in value. The property is assessed by the county at $110.9 million.

"There's no more commercial density available in Pentagon City, period," said Tom Newman, director of the real estate development group at Arlington Economic Development. "That's why this project is exciting for us."

Both of the Kimco and DRA office buildings would have ground-floor retail space. The developers hope to snare one or two large users for the smaller office building and several tenants to take multiple floors at the 20-story building, Brown said.

Initial construction and site-development costs should top $100 million, Brown said.

The Costco site's redevelopment application has another review April 21 by a county site-plan review committee. The project could get a vote by Arlington's planning commission in June and a final vote by the Arlington County Board in July.

If all approvals are obtained, Kimco and DRA would start site work in the third quarter, Brown said.

The smaller office building could be completed in about two years. The larger structure's construction timetable will be determined by pre-leasing activity.

Source: Washington Business Journal

Costco March same-store sales up 7%, total up 11%

Costco Wholesale Corp., the largest U.S. warehouse retailer, reported that its March same-store sales rose 7%, helped by higher gasoline prices and favorable currency translations.

A survey of analysts by Thomson Financial produced a consensus estimate of a rise of 5.9% for the month.

Costco of Issaquah, Wash. reported that same-store sales, those from outlets open at least a year to eliminate the effect of acquisitions and divestitures, rose 5% in the U.S. and 17% elsewhere.

The average sales price per gallon of gasoline jumped 20% in March from a year earlier, Costco said. Stripping out gasoline-price inflation, U.S. comparable sales climbed 3%.

"In addition, foreign-exchange rates, primarily in Canada," helped international comparable sales, Costco said. On a local-currency basis, international comparable sales increased 6% in March.

Total sales for the March period reached $6.57 billion, up 11% from $5.93 billion in the year-earlier period.

Source: Marketwatch

Costco, BJ's profits jump; Big Lots raises guidance

NEW YORK (MarketWatch) -- Thanks to value-seeking shoppers, Costco Wholesale Corp., the largest U.S. wholesale club, said Wednesday that quarterly profit jumped 31%, boosted by international demand and U.S. sales of gasoline. Smaller rival BJ's Wholesale Club Inc. said that profit exceeded its previous projection.

Costco's net income in the fiscal second quarter climbed to $327.9 million, or 74 cents a share, from $249.5 million or 54 cents a share a year earlier, when it had $53.4 million in nonrecurring charges, the Issaquah, Wash.-based retailer said. Sales in the quarter ended Feb. 17 rose 12% to $17 billion. Profit for Costco matched the average estimate of analysts surveyed by Thomson Financial. Sales exceeded the $16.9 billion in average analysts' estimate, according to Thomson Financial.

Wholesale clubs Costco and BJ's, along with discounters and off-price retailers, have benefited from budget-conscious shoppers buying items in bulk or seeking name-brand items at a discount, posting February sales gains that exceeded Wall Street estimates. They are among the few bright spots in the retail sector as economic worries and lack of must-have fashions have hurt department stores and specialty retailers. See full story.

Shares of BJ's (BJ) and close-out retailer Big Lots (BIG) both jumped while Costco's (COST) dropped slightly after its margin missed the forecast.

"Consumers are looking for opportunities to save money in a challenging macroeconomic environment," said Tom Forte of Telsey Advisory Group. "You are seeing that in Costco, BJ and Big Lots."

Costco

Shares of Costco fell 1% after its margin missed some analysts' estimates. The company said margins benefited from higher food sales and a change in its electronics-returns policy, but came under pressure in the pharmacy department and at its food court, with no changes there to counter rising cheese prices. Gross margin widened by 0.24 percentage points, Chief Financial Officer Richard Galanti said on a conference call. Galanti added that Costco is comfortable with analysts' average estimate of 65 cents for the third quarter, though he said that's at "the high end of a small range." Costco's second-quarter U.S. same-store sales rose 7%, including a 5% increase in the U.S. and a 17% jump internationally. Higher sales of gasoline have been a boon to the retailer, with the average price per gallon surging 29% during the quarter. A lower U.S. dollar against the Canadian currency also helped sales. Consumers can buy gasoline as much as 10 cents a gallon cheaper at Costco compared with others in the local market, according to Forte.

"Eventually if it's only gasoline price and foreign currency benefiting results, we could see a decrease," analyst Jharonne Martis of Thomson Financial said.

California, while hurt by declining housing market, also posted positive same-store sales. Deli, produce and fresh-food sales increased, while discretionary items such as home furnishings and jewelry posted a same-store sales drop, Galanti said. Some analysts also noted that the company has benefited from better availability of brands such as Crocs footwear.

"We in fact are seeing quite a bit more activity from some of the variety of nonfood manufacturers that historically would not sell us directly," Galanti commented on the call.

Costco also said Wednesday that February same-store sales rose 7%, including a 5% increase in the United States. Overseas sales climbed 18%. The company has seen a pickup in sales in the last two weeks of the month. Analysts surveyed by Thomson were expecting sales gain of 6%. Results also outpaced the 0.5% to 1% average gain projected for U.S. retailers, according to the International Council of Shopping Centers.

Excluding the benefit of gas inflation, U.S. sales in February rose 3%.

Same-store sales are a key retail performance metric that excludes sales from newly opened or closed locations. Costco has 534 warehouses, including 391 in the United States and Puerto Rico.

BJ's, Big Lots

Also juiced by higher gasoline sales, BJ's net income soared to $50.2 million, or 80 cents a share, from $11.9 million or 18 cents a share a year earlier, when it had a 40-cent net expense. Results exceeded the company's previous guidance of 70 cents to 74 cents a share.

February same-store sales rose 5.9%, exceeding forecast of a 3.8% gain.

BJ's has brought back its former senior management, closed pharmacy departments, shortened store hours and slowed new-unit growth to bolster results, analysts said.

"They are doing a good job of turning around the business," Forte pointed out. "They really did a good job."

Bit Lots shares surged 21% after the close-out retailer projects 2008 profit of $1.70 to $1.80 a share with comparable store sales expected to increase 1% to 2%. The profit forecast exceeded average analysts' estimate of $1.53 a share, according to Thomson Financial. Big Lots, which has 1,353 Big Lots stores in 47 states, sells name-brand furniture, lawn and garden and home-furnishing products at discount prices.

Fourth-quarter profit fell to $92 million from $104.3 million a year earlier. Big Lots said that it expanded operating profit and turned inventory faster as it lowered expanses and installed new register software in 700 stores.

Source: MarketWatch