Thursday, February 5, 2009

Costco Leads Expected String of Retail Warnings

The Wall Street Journal - Costco Wholesale Corp. warned that its fiscal second-quarter profit will fall "substantially below" Wall Street estimates -- foreshadowing what's expected to be a glum parade of downbeat news in the January retail-sales reports that come out Thursday.

Costco, the nation's largest warehouse club chain by sales, had outperformed the retail pack for much of 2008. But Wednesday it said U.S. same-store sales in January were flat compared with a year earlier, while sales at its foreign stores, including markets such as the U.K. and Japan, fell 9%, partly because of unfavorable currency exchange rates.

Citing the "uncertainties surrounding the economy," Costco Chief Financial Officer Richard Galanti declared that the company will no longer publicly forecast financial performance for the remainder of its current fiscal year ending Aug. 30.

Most big retailers report January sales Thursday, and many analysts and consultants are predicting more companies will yank earnings forecasts altogether, as growing unemployment depresses consumer spending and clouds timetables for recovery from the recession.

At Costco, the recession cut into its sales of nonfood items and crimped profit margins in recent weeks as the company lowered prices to spur sales and boost market share, said Mr. Galanti.

Still, he struck an optimistic tone, saying that he believed the pressure on Costco's margins would soften in coming weeks as manufacturers lowered prices for retailers in response to falling commodity costs.

"Who knows where bottom is and how long it will last," Mr. Galanti said in an interview. "But relative to other retailers, we believe we are winning market share, not losing it."

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