Shoppers are spending cautiously because of higher food and gas prices, quarterly results from Target Corp and BJ's Wholesale Club Inc showed on Wednesday.

The results suggest that discretionary spending, and therefore margins, may remain under pressure this year.

At Target, more shoppers have signed up for the chain's credit and debit cards, which offer a 5 percent discount. While that leads people to come in more often, they are using those cards to buy basics such as food, which carry lower margins than clothing and other items.

At BJ's, the No. 3 U.S. warehouse club chain, shoppers traded down in both brands and package sizes, Chief Financial Officer Bob Eddy said during a conference call.

About 1 percent of BJ's customers are not renewing their memberships after the company raised the annual fee by $5 to $50. Still, other members continue to visit, especially to buy gasoline priced lower than at nearby service stations.

On Tuesday, Wal-Mart Stores Inc executives said their customers were showing pronounced signs of living paycheck-to-paycheck as sales at its U.S. discount stores open at least a year had fallen for two straight years.

Overall, things looked all right in the April quarter, said Kurt Salmon retail strategist John Long, but shoppers were largely absorbing higher costs just on food and gasoline, and had yet to face looming increases on everything from detergent to clothing.

We're already starting to see a little bit of margin pressure, Long said. And we think that as we get into the summer and fall, when we see bigger price increases ... that may cause some consumers to pull back.

Apparel makers are raising prices due to higher cotton costs, while Procter & Gamble Co

, Kimberly-Clark Corp and others are raising prices on diapers and other goods due to spikes in material and transportation costs.

Shares of Target were down 0.7 percent at $50.40 in morning trading, while BJ's rose 1.1 percent to $51.86.

TARGET CREDIT LIFT

Target's earnings came in 5 cents a share above Wall Street's expectations, but the gains came from soaring profitability in its credit card business, which eats into margins.

Target's total profit rose 2.7 percent to $689 million in the first quarter ended on April 30. Earnings in the credit card business jumped nearly 75 percent to $194 million.

Selling more fresh produce and signing up more shoppers for its credit cards have reduced gross margin, which slipped to 30.4 percent from 31.3 percent in the quarter.

The Street is having a real problem getting a handle on where this gross margin is going, with the 5 percent reward program and the increased sales of food, said Wall Street Strategies analyst Brian Sozzi.

Still, adding fresh foods to stores and offering the 5 percent credit card discount have led to more visits and sales, even as shoppers remain cautious in their spending, said Chief Executive Officer Gregg Steinhafel.

More shoppers are using the company's credit and debit cards, which accounted for 7.6 percent of sales in stores during the quarter, up from 4.9 percent a year earlier.

Target's results came two days after hedge fund manager William Ackman, who unsuccessfully pushed for changes at the chain, disclosed that he had sold his shares in the company.

FOOD SELLS WELL AT BJ'S

BJ's posted a bigger-than-expected rise in profit and raised its annual earnings forecast as people shopped its stores more often for food and gasoline.

The company sold more food such as bakery and deli items, meat, milk, prepared foods and produce during the quarter, but sales of apparel, books, cigarettes, diapers, videos and televisions fell from a year earlier.

As gasoline prices rise, BJ's and larger rivals Costco Wholesale Corp and Wal-Mart's Sam's Club get increased business at their pumps.

BJ's did not give any update on its ongoing review of options, including a potential sale.

(Reporting by Jessica Wohl; Editing by Lisa Von Ahn)

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