Costco issues earnings warning; shares fall

Costco Wholesale said it expects profit for the current quarter to be "substantially below" analysts' estimates.

The news pushed the stock of the Issaquah-based warehouse-club chain down $3.14, or 6.8 percent, to $42.98. The shares are down 18.1 percent so far this year.

Costco said in a statement Wednesday that earnings per share for its fiscal second quarter, which ends Feb. 15, will miss the consensus estimate of 70 cents. The retailer also said sales in January were little changed at $5.1 billion, and sales at outlets open at least a year — a key retailing metric, known as same-store sales — fell 2 percent.

Costco cut prices to compete with department stores offering deep discounts on some of the same types of designer goods it carries in its warehouses.

Slower sales, higher markdowns and "aggressive" pricing hurt profit in the quarter, Chief Financial Officer Richard Galanti said during a conference call Wednesday.

"This is just a rough retail environment when Costco's getting hit," said David Abella, a portfolio manager at Rochdale Investment Management, with $2 billion in assets, including Costco shares.

The company is also being hurt by lower gasoline prices and the surging U.S. dollar, which cuts the value of overseas sales, Galanti said. Excluding exchange-rate movements, non-U.S. same-store sales rose 4 percent.

In December, Costco executives called second-quarter estimates "on the high side," saying predicting further growth was "very hard."

The company said Wednesday that it will not provide earnings guidance for the rest of the fiscal year.

"Nonfood items like furniture and jewelry are taking a hammering," said Bryan Roberts, global research director at Planet Retail in London. "The big slowdown in nonfood merchandise is really going to eat at their margins."

Costco, which operates 550 warehouses, will report its second-quarter results March 4.