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COSTCO WHOLESALE : Costco profit drops 27 percent

03/04/2009 | 04:32am US/Eastern

(Reuters) - Costco Wholesale Corp said on Wednesday its second-quarter profit fell 27 percent, as the No.1 U.S. warehouse club operator cut prices to win market share during the year-end holiday season.

Costco said profit was $239.7 million, or 55 cents per share, for its fiscal second quarter ended February 15, compared with $327.9 million, or 74 cents per share, a year earlier.

Analysts had on average expected earnings of 60 cents per share, according to Reuters Estimates.

Quarterly sales fell 1 percent to $16.49 billion, excluding membership fees, which increased about 4 percent to $355.6 million. Sales at clubs open at least a year, a key retail gauge known as same-store sales, fell 3 percent.

The retailer said same-store sales in February also fell 3 percent. Analysts were expecting February same-store sales to fall 2.7 percent.

"Our quarterly results were hurt by the continued weakness in non-foods sales and related margins. Margins in foods and non-foods were also negatively affected by increased pre-holiday seasonal markdowns and other selective price reductions to drive sales and increase market share," Chief Financial Officer Richard Galanti said in a statement.

Costco has said it would be aggressive in cutting prices or delaying price increases to retain its shoppers during the recession, though Wall Street analysts have said that strategy would hurt profits.

Last month, it said second-quarter results would be "substantially below" the First Call consensus of 70 cents a share after it reduced prices to attract shoppers during the holiday season.

(Reporting by Ratul Ray Chaudhuri in Bangalore, additional reporting by Nicole Maestri in New York, editing by Will Waterman)

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