NEW YORK - Costco Wholesale Corp. said Wednesday that its earnings for the current quarter will be lower than expected as it delays raising prices on items from food to patio sets amid soaring energy costs that have accelerated in recent weeks.
The reduced profit outlook from Costco reflects a dilemma that retailers, particularly low-price operators, face as the economy struggles: whether to raise prices on products -- which could cost them customers -- or resist price hikes from suppliers as long as possible, a move that depresses profit as they absorb higher costs.
Costco, which sells items in bulk and features gas stations at most locations, has attracted crowds of shoppers as they seek cheaper options. But Costco, like many retailers, can resist for only so long. Most ultimately are passing along the higher prices, which Costco officials said are being pushed by suppliers at a faster and higher rate in recent weeks than before.
That means more financial pain for shoppers.
"I think the consumer is just starting to see, not only with us, rising commodity costs and rising general merchandise costs in a much bigger way then they've seen other than with gasoline itself," said Richard Galanti, Costco's chief financial officer, during a conference call Wednesday.
At Costco, customers have seen the price for rotisserie chicken -- for years a staple at $4.99 -- rise 20 percent in a matter of months.
Soaring fuel costs are having a wide impact on Costco's business, including weakness in its gas operations. That's because Costco typically gets its gas deliveries on a daily basis -- compared with traditional gas station operators who can get better deals since they buy in advance.
Higher energy costs are also affecting the freight costs of distributing merchandise, Galanti said. As a result, Costco now expects profit for the fourth quarter ending Aug. 31 to be "well below" Wall Street estimates. Analysts polled by Thomson First Call expected Costco to earn $1 per share for the fourth quarter.
