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The Honolulu Advertiser
Posted on: Thursday, March 4, 2010

Wholesalers see jump as grocers slump


By SARAH SKIDMORE
Associated Press

Hawaii news photo - The Honolulu Advertiser

Shopping carts at Costco in Mountain View, Calif., weather the rain. Strong overseas sales growth and increased gas prices boosted Costco's revenue in the second quarter.

PAUL SAKUMA | Associated Press

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PORTLAND, Ore. A steady stream of shoppers looking for deals on necessities has helped wholesale club operators Costco Wholesale Corp. and BJ's Wholesale Club Inc. deliver profit gains while many of their grocery competitors struggle.

Costco and its smaller competitor, BJ's, both reported yesterday that traffic, profit and sales trends improved at their stores during the quarter.

It's a marked difference from many of its grocery competitors like Kroger Co., Walmart Stores Inc. and others, where food sales that once buoyed business are starting to sink profits because of the continued drag of the weak economy and increased price competition.

Costco reported that its second-quarter profit rose 25 percent as strong overseas sales growth and higher gasoline prices lifted its revenue. BJ's Wholesale Club Inc. said its fiscal fourth-quarter profit climbed 5 percent, also due in part to higher gasoline prices.

Wholesale clubs have been one of the stronger performers during the economic downturn as they used their size and low-cost format to deliver deals that appealed to cost-conscious consumers. And with their promise of all-around savings for members, they have been insulated from the advertising costs and day-to-day price battles of traditional grocers that can cut into profit.

Wal-Mart Stores Inc., for example, is the world's largest grocer but it also operates Sam's Club the other competitor in the wholesale club industry. When the company reported its earnings in February, it said its sales at stores open at least a year fell 1.6 percent overall, due in part to weak grocery sales, but rose 0.7 percent at Sam's Club.

Profits at many large national supermarket chains are slipping as stores battle for every purchase, such as Safeway which said yesterday that its 2010 results could miss expectations after a tough year.

Costco and BJ's both said they saw an increase in traffic and their membership figures grew for the quarter. And sales at stores open at least a year, considered a key indicator of a retailer's performance as it strips away the impact of new stores, improved.

Costco said its sales at established stores grew 9 percent, with a significant benefit from the impact of a weaker dollar and higher gasoline prices. At BJ's, sales at stores open at least a year grew 4.6 percent, with a 2.3 percent benefit from gasoline sales.

But shoppers are still shying away from nonessentials as they grapple with high unemployment, a weak housing market and uncertain futures.

"In terms of discretionary (items), it is creeping along, but I don't see any major turnaround," Laura Sen, president and CEO of BJ's, told investors yesterday.

Looking forward, analysts are expecting Costco the largest of the wholesale club operators to deliver the long-term growth given both its stability and international reach.

Shares of Costco fell 58 cents to $60.80 in late afternoon trading Wednesday and BJ's fell $1.86, more than 5 percent, to $34.61.