Sector Snap: Discounters slip on Costco warning

Shares of big-format discount retailers declined on Wednesday after Costco Wholesale Corp. forecast earnings below Wall Street expectations.

Costco, which is the nation's No. 1 warehouse club operator, blamed its outlook on high energy costs that are weighing on profit.

PiperJaffray analyst Mitchell A. Kaiser, who rates the stock "Neutral," said rising food and gas prices have crimped gross margins. Kaiser said every 10 basis points of weakness in gross margin equals a 3-cent-per-share decline in earnings.

Shares of Costco declined $7.49, or 10.5 percent, to $64.47 in afternoon trading.

Shares of BJ's Wholesale Club Inc., which was downgraded by Jefferies & Co. analyst Daniel Binder, slipped $3.91, or 9.6 percent, to $36.84.

Binder said Costco's willingness to hold pricing on some products may force BJ's to do the same if it wants to stay competitive.

Elsewhere in the discount sector, shares of Target Corp. declined 45 cents to $45.51, and shares of Wal-Mart Stores Inc. slipped $2.10, or 3.5 percent, to $56.95. Credit Suisse cut its rating on Target to "Neutral" Wednesday from "Outperform."

Shares of PriceSmart Inc., which operates shopping warehouse clubs in Central America and the Caribbean, declined 14 cents to $23.38.