Costco Wholesale Corp posted a quarterly profit on Thursday that just missed Wall Street expectations, as shoppers cut back on discretionary items like clothes and jewelry.

As the recession squeezes household budgets, warehouse clubs like Costco, Wal-Mart Stores Inc's Sam's Club and BJ's Wholesale Club Inc have lured shoppers seeking low prices on necessities like groceries and toiletries.

That trend has also helped close-out retailer Big Lots Inc , which reported better-than-expected quarterly results and raised its full-year forecast on Thursday as it saw strong demand for basic household items and lower freight costs.

But for warehouse clubs, lower fuel costs are hurting comparisons from a year earlier, when high prices boosted sales at their gas stations and a weak U.S. dollar boosted Costco's international results.

In the latest quarter, Costco incurred a litigation charge and faced ongoing weakness in sales, particularly sales of higher-ticket, discretionary items, Chief Financial Officer Richard Galanti said in a statement.

The company's sales have slipped recently as the economic slump douses demand for unnecessary items. Still, the No. 1 U.S. warehouse club chain has said it intends to keep prices low to win market share, even if that crimps profits.

COSTCO MISSES

Costco's profit fell to $209.6 million, or 48 cents a share, in the third quarter ended May 10 from $295.1 million, or 67 cents a share, a year earlier.

Excluding litigation costs, Costco's profit was 52 cents a share, a penny shy of the 53 cents that analysts on average were expecting, according to Reuters Estimates.

Quarterly sales fell about 5 percent to $15.48 billion, excluding membership fees, which dropped about 6 percent to $328.4 million.

Shoppers pay an annual fee to shop in the clubs and get discounts on everything from fresh fruit and bulk-sized packages of paper towels to flat-panel TVs.

Costco's sales at clubs open at least a year fell 7 percent, but would have risen 2 percent without the impact of gasoline deflation and foreign exchange.

Shares of Costco fell 2.8 percent to $47.45 in trading before the market opened.

BIG LOTS TOPS

Big Lots' net profit rose to $36.2 million, or 44 cents per share, in the first quarter ended May 2 from $34.5 million, or 42 cents per share, a year earlier.

Analysts on average expected 40 cents per share.

Sales fell 0.9 percent to $1.14 billion, while sales at stores open at least two years at the start of the fiscal year fell 0.5 percent.

The retailer, which buys excess inventory in bulk and sells it at low prices, expects a second-quarter profit of 26 cents to 32 cents per share from continuing operations.

Analysts were expecting earnings of 29 cents per share.

For the full year, Big Lots forecast profit of $1.85 to $1.95 per share from continuing operations. Its prior forecast called for $1.75 to $1.90 on that basis, while analysts were expecting $1.88.

Big Lots shares were up 4 percent at $24.60 in premarket trading.

(Reporting by Aarthi Sivaraman in New York and Esha Dey in Bangalore; Editing by David Cowell, Jon Loades-Carter and Lisa Von Ahn)

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