Costco Issues Warning on Profit

Costco Wholesale Corp. said Wednesday that it expected its fiscal fourth-quarter profit to be below analysts’ estimates, as sales on items such as jewelry and furniture slowed and the company struggled with higher gasoline prices. The warning sent Costco shares down 4%.

The Issaquah, Wash.-based wholesale club said it expected to earn 68 cents to 71 cents a share for its quarter ending Sept. 3. The 17-week period will include a one-time tax charge of about 3 cents a share.

Without the charge, Costco said it expected to earn 71 cents to 74 cents. Analysts polled by Thomson Financial had been expecting earnings of 77 cents, on average.

Earnings for its full fiscal year are now expected to be $2.23 to $2.26 a share, while analysts had been expecting a profit of $2.33.

Costco had previously said Wall Street’s forecast was at the high end of the company’s expectations, and it had also warned that it might be hard to keep up profit on gasoline sales. In a conference call Wednesday with analysts, the company said that gasoline sales were a factor in the reduced forecast but noted that it wasn’t the only issue.

Costco Chief Executive Jim Sinegal said customers also appeared to be wary of buying discretionary items such as furniture and jewelry, perhaps partly because of feeling squeezed by high prices at the pump. The company was forced to reduce costs on some of those big-ticket items, narrowing its margins.

Costco also is struggling with the costs associated with people returning big-ticket electronic items such as high-end TVs.

Still, Sinegal said other areas, such as toy sales, were doing well.

“It’s a mixed bag,” he said.

The company said it “remains positive” in its outlook for its fiscal 2007 and beyond, and expects to open at least 35 new locations in the coming year.

Costco shares fell $2.07 to $47.18.