March 4 (Bloomberg) -- Costco Wholesale Corp., the biggest U.S. warehouse-club chain, reported its first profit decline in seven quarters as discounting hurt margins and the strength of the dollar eroded international revenue.

Net income fell 27 percent to $239.7 million, or 55 cents a share, in the quarter ended Feb. 15, the Issaquah, Washington- based company said today in a statement. Profit missed the 59- cent median of 18 analysts’ estimates compiled by Bloomberg. Separately, BJ’s Wholesale Club Inc., the third-biggest U.S. warehouse chain, reported fourth-quarter profit that beat analysts’ predictions.

Costco is among retailers suffering as consumers cut back on purchases of jewelry, furniture and other non-necessities as their stock and home values plummet. Still, warehouse clubs and other discount merchants are performing better than other sectors, said Patricia Edwards, a retail analyst and founder of Storehouse Partners LLC in Bellevue, Washington.

“I’ve certainly seen much worse results from other retailers during this earnings season,” Edwards said.

Costco rose 12 cents to $40.81 at 4 p.m. in Nasdaq Stock Market composite trading. The shares have dropped 22 percent this year.

Sales at stores open at least a year fell 3 percent in the quarter. Excluding fuel and foreign currency conversion, they rose 5 percent.

While comparable-store sales are moving in the “right direction,” Chief Financial Officer Richard Galanti said he expects continued weakness in sales of big-ticket items.

Increased Markdowns

Galanti declined to give a profit forecast for the current quarter or the year. Price deflation for some basic items including milk lowered sales, Galanti said on the company’s earnings call today.

Last month, Costco said second-quarter profit would be “substantially below” a First Call consensus of 70 cents a share. In the year-earlier quarter, net income was $327.9 million, or 74 cents.

Costco, which sells bulk goods at a discount, was forced to compete with aggressive holiday markdowns by department stores.

“Margins in foods and non-foods were also negatively affected by increased pre-holiday seasonal markdowns and other selective price reductions,” Galanti said in the statement.

The strength of the U.S. dollar also hurt sales in Canada, the U.K., Korea and Mexico, the company said. Same-store sales at international outlets tumbled 11 percent in the three- month period.

February sales at stores open at least a year fell 1 percent to $5.06 billion, Costco said today. Lower fuel prices at the company’s gasoline stations curtailed revenue, although Costco profits more when costs fall because it buys fuel daily.

BJ’s said in a statement today that net income grew 4.8 percent last quarter to $52.7 million. Excluding some items, profit was 89 cents a share, beating analysts’ average estimate, as compiled by Bloomberg, by 3 cents.

A 7.6 percent drop in gasoline purchases trimmed comparable-store sales growth to 0.6 percent last month, BJ’s said today in a separate report.

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

Last Updated: March 4, 2009 16:19 EST