Costco Warning: Slowdown Trickles Down

Costco shares are down about 8 percent this morning after the discounter said second-quarter earnings would be "substantially below" Wall Street estimates of 70 cents a share. The company will weather this downturn on its recession-proof food business, but it's the non-food category that's hurting now. Merchandise sales are tough all over and slashing prices is putting pressure on margins everywhere in the retail sector. And, like a whole lot of companies, Costco won't be providing any further guidance on earnings for the rest of the year. From the press release:

According to Richard Galanti, Chief Financial Officer of Costco: "General economic conditions have negatively affected our sales, primarily in non-foods, and merchandise margins. Our margins have also been impacted by aggressive merchandise pricing in our core merchandise business to drive sales and increase market share, particularly during the first four weeks of the fiscal quarter. To a lesser extent, we are also being adversely affected by lower year-over-year profits associated with our gasoline business; and international profits have been hurt as a result of the strengthening U.S. dollar. Given the uncertainties surrounding the economy, including consumer behavior, we will not be providing earnings guidance for the remainder of this fiscal year."

Also today, Kraft is feeling the pinch as key customers -- notably Wal-Mart -- pare back inventories as the economy slows. See this Dow Jones interview with CEO Irene Rosenfeld for more.