Wholesale makes higher profits

BOSTON – Warehouse clubs Costco and BJ’s reported substantially higher profits Wednesday, with both benefiting as cost-conscious shoppers worried about the economy shunned department stores and specialty retailers in favor of lower-priced alternatives.

BJ’s even said it welcomes continuing modest inflation, hoping more shoppers will view warehouse clubs as havens from higher food and gas prices.

“We’re embracing inflation in this particular organization,” BJ’s chairman and chief executive Zarkin told analysts in a conference call.

Costco Wholesale Corp., the nation’s largest warehouse club, said its quarterly profit rose 31 percent to continue a run of solid results driven by strong sales and cost-cutting.

Its smaller rival, BJ’s Wholesale Club Inc., saw its first-quarter profit more than quadruple. The Natick, Mass.-based chain beat Wall Street expectations and raised its 2008 earnings forecast, continuing a turnaround since disappointing 2006 results led Zarkin’s predecessor to step down.

The quarterly numbers appear to bolster the warehouse clubs’ reputations as strong performers during economic downturns, UBS analyst Neil Currie said.

“There is no such thing as a recession-proof retailer,” Currie said. “But there are some formats that are more resilient. Drugstores are the most resilient, but warehouse clubs aren’t far behind.”

Both companies’ results also were boosted by higher gasoline sales, although gas profit margins were low. Warehouse clubs’ low gas prices entice many customers to also shop for merchandise during the same trip.

Issaquah, Wash.-based Costco – whose chief rival is Wal-Mart Stores Inc.’s Sam’s Club – said second-quarter net income rose to $327.9 million, or 74 cents a share, matching expectations of analysts surveyed by Thomson Financial. In the same quarter a year earlier, Costco earned $249.5 million, or 54 cents per share, when it took $53.4 million in charges.

Sales increased 12 percent to $16.62 billion, just shy of the analysts’ consensus estimate of $16.85 billion.

Costco’s shares fell $1.56, or 2.5 percent, to $60.83.

Shares of BJ’s rose $2.28, or 6.85 percent, to $35.56 after the company posted fourth-quarter net income of $50.2 million, or 80 cents per share, which easily beat analysts’ forecast for a profit of 74 cents a share. It was up from net income of $11.9 million, or 18 cents a share, in the year-ago period.