Feb. 4 (Bloomberg) -- Costco Wholesale Corp., the biggest U.S. warehouse-club chain, fell the most in two months after the retailer said profit will be “substantially below” analysts’ estimates.

Costco fell $3.14, or 6.8 percent, to $42.98 at 4 p.m. in Nasdaq Stock Market composite trading. The stock has declined 18 percent this year.

Costco cut prices to compete with department stores offering deep discounts on some of the same types of designer goods it carries in its warehouses. Retailers vied for customers shying from expensive purchases during the worst financial crisis since the Great Depression.

“This is just a rough retail environment when Costco’s getting hit,” said David Abella, a portfolio manager at Rochdale Investment Management, with $2 billion in assets including Costco shares.

Earnings per share for the fiscal second quarter will miss the First Call consensus estimate of 70 cents, the Issaquah, Washington-based retailer said in a statement. Costco also said sales in January were little changed at $5.1 billion, and revenue at outlets open at least a year fell 2 percent.

Slower sales, higher markdowns and “agressive” pricing hurt profit in the current quarter, Chief Financial Officer Richard Galanti said during a conference call today.

The company is also being hurt by lower gasoline prices and the surging U.S. dollar, which cuts the value of overseas sales, Galanti said today in the statement. Excluding exchange-rate movements, non-U.S. same-store sales rose 4 percent.

In December, Costco executives called second-quarter estimates “on the high side,” saying predicting further growth was “very hard.”

“Non-food items like furniture and jewelry are taking a hammering,” Bryan Roberts, global research director at Planet Retail in London, said by telephone. “The big slowdown in non- food merchandise is really going to eat at their margins.”

Costco reports second-quarter earnings on March 5.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: February 4, 2009 16:33 EST