UPDATE 2-Deep discounting eats into Costco's holiday profit

Thu Mar 6, 2014 7:55am EST
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* 2nd-quarter profit falls 15 pct to $463 mln

* Sales rise 6 pct to $25.76 bln

By Aditi Shrivastava

March 6 (Reuters) - Warehouse retailer Costco Wholesale Corp reported a bigger-than-expected 15 percent fall in profit as unusually deep discounting in the holiday shopping season hurt margins, sending its shares down about 3 percent in premarket trading.

Bad weather and six fewer shopping days between Thanksgiving and Christmas prompted many retailers to offer deeper discounts and increase promotions to lure shoppers.

Costco Chief Financial Officer Richard Galanti said the first four weeks represented the majority of earnings underperformance in the quarter that began on Nov. 25.

Weaker gross margins, particularly during the four-week holiday selling season, and lower international profit due to a weakening of foreign exchange rates hurt results, Galanti added.

Retailers have also been hurt by a $5 billion cut to the federal food stamps program in November. One in every seven Americans took a hit from the first across-the-board reduction in the history of the decades-old anti-hunger program.

Wal-Mart Stores Inc, the world's largest retailer, blamed sharp cuts in food stamp benefits and higher payroll taxes for a disappointing full-year profit forecast last month.   Continued...