By Amy Tsao
Over the past several years, while Sam's Club seemed an orphaned division of megastore-focused parent Wal-Mart, warehouse shopping club Costco proved itself the better investment. Sam's trailed Costco in earnings and same-store sales growth. Things are changing, though. Results are improving at Sam's, and Wal-Mart (WMT) has turned to the warehouse concept as a growth vehicle. Sam's appears intent on becoming the low-cost price leader in warehouse stores. Many investors have a healthy respect -- some call it fear -- for what a dominant industry leader such as Wal-Mart can do to the competition when it commits to becoming No. 1.
FEELING THE HEAT. A revived Sam's is taking a toll on Costco (COST) and its investors. On Aug. 5 , Issaquah (Wash.)-based Costco told investors in a sales update that price competition from Sam's are hurting margins, as are rising overheads. It warned that earnings per share for the quarter ending Aug. 31 would be closer to $0.46 to $0.48, down from its original projection of $0.54 to $0.56. In the two days following the lowered guidance, investors pushed Costco stock down by 21%, to $29. The stock now trades at around $31.
Costco chief executive, James Sinegal, downplays the increased pressure from Sam's. "The term 'price war' is a little overdramatic. There's been tightening of pricing, but that mo