An aggressive effort to win market share by slashing prices took a toll on Costco Wholesale Corp as the No. 1 U.S. warehouse club posted lower quarterly profit the same day smaller rival BJ's Wholesale Club Inc reported better-than-expected results.

Close-out retailer Big Lots also reported a higher-than-expected quarterly profit and said it paid down its credit facility, leaving it in a net cash position.

Warehouse clubs have been attracting shoppers looking for discounts on necessities like food and toiletries in the past year as the recession crimps household budgets.

But the clubs are facing tougher results compared with a year ago when high gas prices drove sales at their fuel stations. In addition, a stronger U.S. dollar is decreasing the value of Costco's overseas operations, and it has said it will cut prices to keep its customers during the downturn.

Costco also said its February sales at clubs open at least a year, or same-store sales, fell 3 percent, worse than the 2.7 percent decline analysts were expecting.

BJ's February same-store sales rose 0.6 percent, lower than the gain of 1.6 percent expected by analysts.

The results come as major U.S. retailers are due to post February same-store sales on Wednesday and Thursday. Analysts expect an industry decline of 1.2 percent for the month, with a drop of 4.8 percent once results for Wal-Mart Stores Inc are excluded, according to Thomson Reuters.

Costco continues to generate strong sales (led by traffic) as consumers continue to flock to the warehouse clubs to consolidate trips, purchase in bulk, and obtain lower gas prices, said JP Morgan analyst Charles Grom in a note.

On the negative side, the company is focused more on preserving market share than driving margins higher, leaving earnings growth at risk, he wrote.

Costco shares fell 1.7 percent to $40 in premarket trading. Big Lots shares advanced more than 12 percent to $16.34.

PROFITS DIVERGE

Costco's profit was $239.7 million, or 55 cents per share, for its fiscal second quarter ended February 15, down from $327.9 million, or 74 cents per share, a year earlier.

Analysts, on average, expected earnings of 60 cents per share, according to Reuters Estimates.

Our quarterly results were hurt by the continued weakness in non-foods sales and related margins, said Costco Chief Financial Officer Richard Galanti in a statement. Margins in foods and non-foods were also negatively affected by increased pre-holiday seasonal markdowns and other selective price reductions to drive sales and increase market share.

Last month, Costco warned that its second-quarter results would be substantially below the First Call consensus of 70 cents a share after it reduced prices to attract shoppers.

BJ's, the No. 3 U.S. warehouse club operator, said net income was $52.7 million, or 91 cents per share, for the fiscal fourth quarter ended January 31, up from $50.2 million, or 80 cents per share, a year earlier.

Excluding a 2-cent-per-share gain for a state income tax audit settlement, earnings were 89 cents per share, compared with Wall Street estimates of 86 cents per share.

Costco's quarterly sales fell 1 percent to $16.49 billion, excluding membership fees, which increased about 4 percent to $355.6 million. Sales at clubs open at least a year, a key retail gauge known as same-store sales, fell 3 percent.

BJ's previously announced that fourth-quarter sales rose 3.2 percent to $2.5 billion.

BIG LOTS PROFIT FALLS

Big Lots' income from continuing operations was $81.8 million, or $1.00 per share, compared with $85.6 million, or 97 cents per share, a year ago. Analysts had been expecting it to earn 93 cents per share.

Big Lots, which specializes in sales of excess inventory, said fourth-quarter net sales fell to $1.37 billion from $1.41 billion, while sales at its stores open at least two years, or same-store sale, fell 3.2 percent.

For the full-year, it expects same-store sales to be in a range of flat to down 2 percent.

Big Lots forecast first quarter earnings per share of 34 cents to 40 cents from continuing operations and full-year earnings per share of $1.75 to $1.90 from continuing operations.

Analysts, on average, had been expecting it to earn 35 cents for the first quarter and $1.70 for the full year.

(Additional reporting by Jessica Wohl in Chicago; Editing by Derek Caney, Dave Zimmerman)

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