BJ's Wholesale Club Inc reported a 37 percent drop in quarterly profit on Wednesday, hurt by a charge for a proposed legal settlement regarding worker pay.

Excluding the charge, its earnings per share met analysts' expectations and the retailer reiterated its earnings forecast for the fourth-quarter, which includes the holiday season.

But shares fell after the results failed to wow investors, who have come to expect BJ's to beat estimates.

JP Morgan analyst Charles Grom said investors could be disappointed since BJ's had exceeded Wall Street's earnings per share estimates for the previous 10 consecutive quarters.

BJ's shares, which have risen 16 percent since the retailer reported quarterly results in August, fell 2.3 percent to $35.51 in late morning New York Stock Exchange trading.

Headed into the holiday season, Chief Executive Laura Sen said that pricing for general merchandise has been extremely aggressive across the industry. She expects consumers to wait until the last minute to complete their gift buying.

We saw that at Halloween, and I'm sure we'll see that at Christmas too, she said. It's really going to be important that we have a nice offering and hold ourselves ready to do business right to the end.

Given uncertainty around the economy and outlook for price deflation, the warehouse club operator said it wanted to complete its fourth quarter before providing a financial forecast for 2010.

DEFLATION TAKES A TOLL ON SALES

BJ's profit for the third quarter that ended October 31 fell to $17.7 million, or 32 cents a share, from $28.2 million, or 48 cents a share, a year earlier.

Excluding the 13 cent charge related to the proposed settlement of a legal claim, the profit was 45 cents a share, in line with the analysts' average forecast, according to Thomson Reuters I/B/E/S.

BJ's Wholesale, the No. 3 U.S. warehouse club operator behind Costco Wholesale Corp and Wal-Mart Stores Inc's Sam's Club, has seen traffic rise amid the recession as shoppers seek its low prices on food and staple items, like diapers and paper towels.

Shoppers pay an annual fee to shop in its clubs and get discounts on everything from televisions to frozen food.

But its sales have faced tougher comparison to a year ago, when results were boosted by rising food and gasoline prices.

As BJ's reported earlier this month, sales rose 2 percent to $2.45 billion, while sales at its clubs open at least a year, or same-store sales, fell 2.5 percent. Excluding the impact of gasoline sales, its quarterly same-store sales rose 3.9 percent.

While deflation in particular pressured sales of perishable items, BJ's also said sales were hurt as it opened new locations closer to existing ones, siphoning off sales from the older stores.

In the recently completed quarter, BJ's said sales were stronger for cereal, computer equipment, frozen food, and health and beauty aids compared with a year ago. Sales were weaker for electronics, jewelry, milk, oils and shortenings, sporting goods, toys and trash bags.

For the fourth quarter, it expects net sales to increase 10.5 percent to 12.5 percent and same-store sales to rise 5 percent to 7 percent. It said it still expects fourth-quarter earnings per share of 96 cents to $1.00, compared with analysts' estimate of 97 cents.

(Reporting by Dhanya Skariachan and Nicole Maestri; Editing by Derek Caney, Dave Zimmerman)

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