Sept. 3 (Bloomberg) -- Costco Wholesale Corp., the biggest U.S. warehouse club, may have its best holiday-shopping season since going public 23 years ago because most U.S. retailers are preparing to have their worst since 1979.

As Costco snags higher-end shoppers from retail rivals, investors aren't giving the discounter's share price the same bounce as Wal-Mart Stores Inc., up 26 percent in trading this year. Costco is down 2 percent, even as most of its biggest holders have boosted their stakes.

During the next 12 months, that will change with the warehouse chain likely to outperform the world's largest retailer, gaining 27 percent to $85 a share, according to estimates by Edward Weller, a ThinkPanmure LLC analyst in San Francisco. A surge in the stock would follow an historical relationship between the two chains' shares, based on data compiled by Bloomberg. Costco lagged behind run-ups in Wal-Mart at least four times in the past four years before rallying to surpass it.

Costco's price-to-earnings ratio of 23 is ``low compared to where they've been historically,'' said Patricia Edwards, a portfolio manager at Wentworth Hauser & Violich in Seattle, which oversees $14.8 billion in assets and owns both companies' shares. ``Their same-store sales have been very consistent over the past few years.''

Issaquah, Washington-based Costco is adding $6,000 tennis bracelets and $460 Botkier designer duffel bags to target wealthier consumers also shopping for jumbo boxes of baby wipes and detergent. U.S. discounters, including BJ's Wholesale Club Inc. and TJX Cos.' T.J. Maxx, may lure price-conscious shoppers from Macy's Inc. and Nordstrom Inc. during the key sales period, Edwards said.

Higher-End Gifts

``It's the higher-end consumer looking for gifts,'' she said. The ``treasure hunt is going to take on greater significance this year. The guys at Costco have actually been maniacs about making sure they have the right stuff in the stores.''

Costco rose 7 cents to $68.33 at 4 p.m. in Nasdaq Stock Market composite trading after the company reported August same- store sales that fell short of some analysts' estimates. Costco said sales at stores open at least a year rose 9 percent last month, less than the average 10 percent estimate of 16 analysts surveyed by Retail Metrics LLC of Swampscott, Massachusetts.

``We continue to drive sales and drive business and drive market share, and when you do that the stock's going to take care of itself,'' Costco spokesman Bob Nelson said.

Wal-Mart can't comment on its share performance compared with Costco's, spokesman John Simley said in an e-mail.

Buying Shares

As of June 30, nine of Costco's 13 biggest investors added to holdings in the second quarter.

The discounter ``just continues to dominate,'' said Walter Todd, a principal at Greenwood Capital Associates LLC in Greenwood, South Carolina. The firm oversees $800 million in assets, holds 40,000 Costco shares and bought a ``few thousand'' more in July, he said.

Retail-industry analysts say 2008's holiday season may be the bleakest since 1979, when Americans were also dealing with record oil prices.

U.S. retailers' holiday sales rose 3 percent in 2007, the smallest gain in five years, according to the National Retail Federation. Sales in 2008 will be unchanged or grow the least in three decades, said Howard Davidowitz of Davidowitz & Associates Inc., a New York-based consulting and investment-banking firm.

Vying for Customers

Many stores are introducing cheaper goods to retain customers, said Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York.

``We're coming off a terrible holiday season last year,'' Davidowitz said. ``This one's going to be worse.''

Gasoline prices have risen 33 percent in the past 12 months, straining budgets squeezed by falling home prices. Food costs will jump as much as 6 percent this year, the U.S. Department of Agriculture forecast.

The last time gasoline as a component of personal spending was as high was in September 1982, during an energy crisis triggered by the revolution in Iran, OPEC's second-largest producer.

``Consumers are stressed,'' said McGranahan. ``Discretionary spending is down and they're being crowded out with food and energy prices.''

The sluggish economy is driving Costco's sales growth, which has outpaced Wal-Mart's for three quarters as more shoppers seek bargains on luxury items. The higher-end goods are drawing in ``a lot'' of new customers, said Greenwood Capital's Todd.

Gamble on Economy

Adding expensive products could be a gamble for Costco if the economy deteriorates, Edwards said. Consumers might stop spending on more-profitable discretionary items such as jewelry, cutting into the company's margins. Warehouse-club membership renewals may also decline as shoppers feel a greater pinch on their pocketbooks, she said.

Wal-Mart is the ``best of breed'' when it comes to offering the lowest prices on food and other necessities, said Patrick Diedrickson, an analyst at H&R Block Financial Advisors Inc. in Detroit, who suggests buying Costco and Wal-Mart stock.

Costco may benefit more than Wal-Mart's Sam's Club warehouse unit as gasoline prices decline from record levels. The companies buy gasoline daily and price it to match or beat local competitors, so costlier fuel eats into margins.

Sales of the fuel account for about 10 percent of Costco's total revenue, compared with about 7 percent at Sam's Club, according to ThinkPanmure.

Costco's profit will be ``well below'' the $1-a-share average analyst estimate for the quarter ended Aug. 31 because of energy costs, Chief Financial Officer Richard Galanti said July 23, driving the shares down 12 percent that day.

The retailer may retain wealthier shoppers when the economy improves, said Russell Jones, director of retail at consulting firm AlixPartners LLP in Southfield, Michigan.

During tough times, shoppers ``may purchase jewelry at Costco instead of Tiffany,'' said H&R Block's Diedrickson.

To contact the reporters on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net; Lauren Coleman-Lochner; in New York at llochner@bloomberg.net.

Last Updated: September 3, 2008 16:38 EDT