Starbucks Plans Return to Its Roots

Howard D. Schultz, the chief executive of Starbucks, announced sweeping changes on Wednesday for the company as it seeks to reconnect with customers who have left for competitors or pared back their coffee budget in hard economic times.

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Times Topics: Starbucks CorporationThe initiatives are intended to restore an authentic coffeehouse experience to the stores and, in turn, re-energize an ailing stock that has lost half its value in the last 15 months.

In front of 6,000 investors, employees and analysts at the annual shareholder meeting on Wednesday, Mr. Schultz introduced an improved automated espresso machine that grinds coffee for each drink and has a lower height that will allow customers to see baristas making their beverage. He said the company would roll out the Swiss-made Mastrena machines to three-fourths of Starbucks stores by 2010.

Mr. Schultz also announced the acquisition of the Coffee Equipment Company, the four-year-old Seattle-based maker of the Clover coffee machine, which brews a more expensive, higher-quality coffee one cup at a time. The price was not disclosed. Starbucks will roll out Clover systems in select markets.

Mr. Schultz described a host of other plans: a pungent new coffee blend, a partnership with Conservation International to certify environmentally responsible whole-bean espresso products, and a rewards program for users of the Starbucks customer card.

Beginning in mid-April, users of the customer card will be able to customize their drinks — with soy milk or vanilla, for example — at no cost.

The announcements are intended to help Starbucks hang on to customers in the face of intensifying competition for brewed coffee from Dunkin’ Donuts and McDonald’s, which is widely introducing espresso beverages this year.

“This was more of a position statement. They are going back to their core,” said Sharon Zackfia, a securities analyst with William Blair & Company. “They are saying, ‘We are not going to change who we are, we are going to defend turf aggressively.’ ”

Mr. Schultz obliquely referred to the powerful new rivals in an afternoon question-and-answer session with reporters. “A lot of people are making unique claims about coffee and what they do,” he said. “What’s interesting to me is that they are not coffee roasters.”

But Mr. Schultz tried largely to keep the focus on the company’s internal challenges and future moves. “This is the first time the U.S. business is under pressure; it’s a character test,” he said. “But it’s not about the economy. We don’t want to use that as an excuse. And it’s not about the competition. Don’t believe the media hype. There’s no coffee war going on. This is about us.

“We somehow evolved from a culture of entrepreneurship, creativity and innovation to a culture of, in a way, mediocrity and bureaucracy,” Mr. Schultz said.

His remarks combined self-criticism with musings on the turbulent economy, which he noted was reducing traffic to Starbucks stores. The company faces a hurdle that may be impossible to overcome in the short term: Will penny-pinching Americans, in the grip of an economic downturn, still pay $4.10 for their daily dose of white chocolate mocha-flavored coffee?

Mr. Schultz said several times that the economy looked grim for the rest of the year, particularly in regions of the country hit hard by the subprime mortgage crisis.

Starbucks has also suffered from rising wholesale prices for coffee and dairy products. In the face of those pressures, Mr. Schultz returned as chief executive 11 weeks ago after serving eight years as chairman. He quickly announced 600 layoffs and the closing of 100 of the least profitable Starbucks stores in the United States. He also said Starbucks would stop selling a line of breakfast sandwiches that were served warm, creating an aroma that overwhelmed that of the coffee in stores.

At the heart of the new announcements is a desire to revisit the company’s early devotion to high-quality coffee. The new coffee blend, called Pike Place Roast, is a reference to the location of the first Starbucks store. Starbucks will introduce the blend in stores next month. Baristas will be directed to brew smaller batches of coffee and refresh the coffee in urns every 30 minutes. Today, coffee can sit in Starbucks’s urns for as long as two hours.

Mr. Schultz called the new blend “a coffee so fresh that those people who drink it with milk and sugar will want to drink it black because of the sweetness.”

Microsoft Buys Virtualization Maker Kidaro

Microsoft on Wednesday announced its intention to purchase a small Israeli company called Kidaro, which makes desktop virtualization management solutions for the enterprise. No purchase price has been revealed thus far, but an Israeli business journal reports the price as $100 million. Microsoft has been investing heavily in virtualization technologies lately and now offers a comprehensive range of virtualization solutions.

"The acquisition of Kidaro is an important component of our virtualization strategy, and it delivers a powerful new tool to help enterprise customers optimize their desktops," says Microsoft general manager Shanen Boettcher. "Kidaro's seamless user interface and management capabilities allow enterprises to more easily use and manage Virtual PCs."

Kidaro's solutions work with existing Microsoft virtualization products like Virtual PC to help enterprises deploy, operate, and secure virtual machines in their businesses. Kidaro also extends Virtual PC with new functionality, such as the ability to expose individual virtualized applications instead of just full PC environments, the latter of which can be confusing to users.

One question about this purchase involves Kidaro's support of non-Microsoft virtualization technologies. The company currently supports VMWare virtualization products as well, but it's unlikely that Microsoft will actively continue this support moving forward.

HP rethinks research, aims to speed ideas to market

Positioning itself to capitalize on the new era of "cloud computing," Hewlett-Packard on Thursday announced a dramatic restructuring of its research efforts, refocusing from 150 projects into 20 to 30 larger projects that reflect a new vision for an "everything as a service" Web.

Showcasing several ongoing projects with names like CloudPrint and Mediascape, HP executives emphasized that the revamp would not entail a reduction of investment in research, or an abandonment of "blue sky" exploratory research. But the strategic shift, they said, is to gear HP Labs for accelerating innovation to commercial uses.

HP Labs, encompassing more than 600 researchers in seven locations around the world, has its headquarters on Page Mill Road in Palo Alto, a short distance from HP's corporate headquarters.

"It's one place where there is still R left in R&D," said HP Chief Executive Mark Hurd, suggesting that other technology companies are focused more on development than research. "So this is a big deal for us."

The reorganization has been led by Prith Banerjee, an entrepreneur and academic who was hired by Hurd six months ago to lead HP Labs.

Banerjee said the approach HP took in the past was "appropriate" for the time but that advances of the Internet have made HP Labs' past approach of many small projects out of date.

HP Labs' global research troops, Banerjee said, are being reorganized into 23 non-physical "labs" of 20 to 30 members each.


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Their work will focus on five areas, which Banerjee described as "information explosion," "dynamic cloud services," "content transformation," "intelligent infrastructure" and "sustainability."
In an interview with the Mercury News, HP Executive Vice President Shane Robison said the initiative initially caused "angst" among researchers. But he said friction was minimized by empowering the researchers to orchestrate the priorities themselves.

Many ongoing projects will be shelved. "We're going to pick the gems that fit with the themes and make sure they're staffed for success," Robison said. The effort will "increase the probability of success and shorten the time frame."

A video highlighted how HP was examining how, in data centers, energy could be saved by replacing copper wires with light beams to transfer data. Another demonstration showed how devices with geographic sensors could be used to turn the surrounding physical world into a digital game - and how a laptop empowered by such location technologies and connected to a more intelligent network could effectively "look inside" a buildings' wall.

Hurd said HP Labs would be more "transparent" than in the past. A Web site called HP IdeaLab, at www.hp.com, offers peeks at ongoing projects, inviting feedback from consumers and outside researchers.

However, Robison said HP remains committed to doing proprietary rather than open-source research.

"We want our researchers to publish, but we want them to file patents," he said.

HP Labs, which first opened in 1966, is part of the legacy of company founders Bill Hewlett and David Packard, who first tinkered with vacuum tubes in a garage about a mile away. The sprawling lab facility is on the short list of Silicon Valley's leading corporate research centers, along with SRI, Xerox PARC and IBM's Almaden Research Center.

Competition and the accelerating pace of innovation has created more pressure for such centers to concentrate on projects that can be commercialized, as opposed to advancing science for its own sake.

While Hurd has emphasized cost cutting and finding new efficiencies to enhance the bottom line, HP Labs continues to conduct far-reaching research into the possibilities of such fields as nanotechnology and quantum science. But those projects also are expected to have a clear road map toward commercialization.

In recent years, HP Labs has been involved in developing computer chip circuitry at the atomic scale and software to automate data centers On one recent tour, for example, researchers discussed how they envision enhanced video-conferencing technologies such as HP's Halo or Cisco System's TelePresence to evolve into three-dimensional holograms.

Blockbuster finish for movie-rental co.

DALLAS - Blockbuster Inc., the movie rental company, said Thursday its fourth-quarter profit more than quadrupled as it cut costs and adjusted prices for its online subscription service.


The Dallas-based company also said it would restate financial results over the past three years — relatively minor adjustments in the few millions.

Overall, 2007 was a money-losing year marked by a summer retreat in its online service that competes with Netflix Inc. But Blockbuster said it would return to profitability this year and earn $5 million to $25 million.

Its shares fell 31 cents, or 10.2 percent, to $2.73 Thursday. They have traded in a 52-week range of $2.66 to $7.30.

Blockbuster said it earned $38.1 million, or 18 cents per share, in the quarter ended Jan. 6, up from $8.3 million, or 4 cents per share a year ago.

Excluding one-time costs such as severance payments to laid-off workers, Blockbuster said it would have earned $54.9 million, or 26 cents per share.

Analysts, who usually exclude one-time items from their estimates, had expected profit of 18 cents per share, according to a survey by Thomson Financial.

Revenue rose 3.6 percent to $1.57 billion, beating analysts' forecast of $1.44 billion.

Sales at stores open at least a year, a key figure in retailing, rose 2.9 percent.

Chairman and Chief Executive James Keyes said the results show there's still life in movie-rental stores.

"There has been a lot of skepticism about the store format, but we believe they are underutilized," Keyes said in an interview.

Keyes said Blockbuster can boost in-store rentals further by keeping new releases on the shelves.

"Today, you'll find "American Gangster" in stock in virtually every store," he said. "That's a big change."

The company trimmed operating expenses to $723.9 million from $736.8 million a year ago. That was partly due to lower advertising spending on its Total Access online program.

Keyes said Total Access has 3.1 million customers, unchanged since the end of September. Netflix has said it gained 451,000 subscribers in the last three months of 2007, ending the year with 7.5 million.

Blockbuster raised prices sharply for online customers who also want unlimited free exchanges at the chain's stores. But it cut prices for many online customers who get movies only by mail and don't swap them for more DVDs in the stores.

Keyes said the company is continuing to test new pricing strategies, such as lower prices for one-day rentals, partly to compete with DVD-rental kiosks springing up in grocery stores. Another option, he said, would give customers the option of paying an extra annual fee to get lower pre-rental prices — he compared it to Costco membership.

Citigroup analyst Tony Wible said he was "excited" by the fourth-quarter results. He said Blockbuster was helped by "more rational" pricing for Total Access and store closings by its smaller rival Movie Gallery Inc., which is operating under bankruptcy protection.

For the fiscal year, Blockbuster said it lost $85.1 million, or 45 cents per share, compared to a profit of $39.2 million, or 21 cents per share, in 2006. Revenue edged up to $5.54 billion from $5.52 billion in 2006.

Blockbuster said it would restate past results downward by $1.9 million last year, $4.2 million in 2006 and $4.2 million in 2005.

The company also said it would report weaknesses in accounting for expense accruals and foreign currency exchange adjustments.

Carrefour in Talks to Sell Property; Profit Stagnates (Update2)

Carrefour SA, the world's second- largest retailer, plans to sell 1.5 billion euros ($2.3 billion) of property this year as billionaire Bernard Arnault and Colony Capital LLC become its biggest shareholders.

Chief Executive Officer Jose Luis Duran said today that the supermarket owner is in talks with ``several private investors'' and real estate would become Paris-based Carrefour's ``second business.'' The retailer also reported second-half profit was little changed today amid French discounting.

Carrefour rose as much as 4.4 percent in Paris trading after the Halley family said it wouldn't vote as a bloc, freeing members to sell their shares. The family initially resisted demands by Arnault and Colony to sell property, and has lost half its investment since combining its Promodes SA chain with Carrefour almost a decade ago. Carrefour still plans an initial public offering for Carrefour Property, though not before 2009.

Arnault and Colony ``are likely to want to restructure the company'' now that the Halleys have dissolved their pact, said Chris Hogbin, an analyst at Sanford C. Bernstein in London. ``I think that is what the shares are responding to.''

Carrefour rose 2.02 euros to 48.46 euros at 1:36 p.m. in Paris trading. The stock is still down 9 percent this year, compared with a 4.3 percent gain by Wal-Mart Stores Inc., the only retailer of greater size.

Halley Agreement

Arnault, France's richest man, and Colony Capital LLC, a Los Angeles-based private-equity investor, said they plan to ``exploit the group's ability to create value'' as Carrefour struggles with stagnant sales in France.

Their Blue Capital venture bought 9.1 percent of Carrefour a year ago and will become the biggest investor on April 15, when the dissolution of the Halleys' pact takes hold and Carrefour holds its annual shareholder meeting.

Family members currently control 13 percent of Carrefour shares and 20 percent of its voting rights. Robert Halley, the patriarch who became chairman last year, plans to retain his title. The family will lose its two other board seats.

Duran said during a press conference in Paris today that Carrefour plans to sell up to 1.5 billion euros of real estate by the end of 2008 to private and institutional investors.

Property Sales

``We do not believe it's in Blue Capital's mind to launch a full bid,'' Citigroup analysts including Jerome Samuel wrote in an e-mailed note. Still, the Halleys' move ``presents a possible opportunity'' for Blue to increase its control amid ``apparent disagreements'' within the Halley family, they wrote.

Pressure from Colony and Arnault had prompted Carrefour to announce it was pursuing an initial public offering for its property business. That plan was later put on hold as stock markets slumped around the world.

``The markets are too shaky, too volatile at the moment,'' said Chief Financial Officer Eric Reiss in an interview after the press conference. ``We don't want to suffer big discounts. We want to show that we have a strong real-estate story.''

The retailer may sell a further 3 billion euros of real estate, and will hold an IPO for Carrefour Property when market conditions permit. Duran said a property IPO won't happen in 2008 and the company plans to keep majority control of its real- estate assets.

Carrefour Property represents about 250 hypermarkets and 500 supermarkets in France, Spain, and Italy, according to Reiss, who estimates its total value between 20 billion euros and 25 billion euros.

Second-Half Earnings

``We put in a dedicated group of managers, and expect to make property our second business,'' Duran said. ``It's obvious that Colony has considerable expertise in real estate, and they have input on our property strategy,'' the executive said.

Second-half profit was unchanged at 1.57 billion euros, according to Bloomberg calculations, and full-year operating profit in France fell 5.7 percent amid discounts by rivals such as Groupe Auchan SA. Dutch retailer Royal Ahold NV today reported that second half profit rose 5.4 percent rise to 470 million euros.

Full-year profit rose 1.4 percent to 2.3 billion euros. Net income from recurring operations rose 0.7 percent to 1.87 billion euros, compared with the 1.9 billion-euro average compiled by Bloomberg from 14 analyst estimates. Carrefour reiterated its 2008 target of growing operating profit faster than sales.

Earnings were ``bang in line'' and the guidance is ``not surprising, but it's reassuring that it's not worse,'' Bernstein's Hogbin said.

French Discounts

Rising food prices in France, combined with pressure from competitors to keep prices low, eroded profitability. Food suppliers in France raised their prices by up to 10 percent since the beginning of 2008, Duran said.

French operating profit in 2008 will still grow faster than sales for the first time in four years as the company cuts logistics costs, Duran said during a conference call.

Carrefour spent $1.1 billion last year to buy Brazil's Atacadao and bulked up in Poland by purchasing Royal Ahold NV's local supermarkets. Operating profit in Latin America jumped 87 percent and it increased 28 percent in Asia.

Profit is ``entirely driven by emerging markets'' at Carrefour, Jaime Vazquez, an analyst at JPMorgan Chase & Co. in London, said before the figures were released. He has an ``overweight'' recommendation on the stock.

The retailer also plans to open its first Russian store in the second half this year and five more next year, Duran said. Carrefour is not in talks with India's Wadia family to form retail partnership in the country, the executive said.

UBS shares sink anew on writedown fears

Swiss bank UBS AG (UBSN.VX) came under renewed pressure on Thursday due to speculation it had sold a huge portfolio of risky mortgages at a deep discount and that the scale of its subprime losses was rapidly mounting.


Analysts said they believed UBS had sold its Alt-A investments -- U.S. mortgages ranked between prime and subprime -- to bond manager Pimco (ALVG.DE) for 70 cents to the dollar, taking a deep discount on a 26.6 billion Swiss franc ($25.7 billion) portfolio.

Analysts also see the ailing bank making further writedowns on a massive 400 billion franc portfolio of repurchase agreements as it rushes to cut its exposure to the capital markets in general and to risky assets in particular.

While selling the Alt-A assets would free UBS of some of the uncertainty that has dogged its share price, the cost could be heavy, entailing additional losses. By contrast, any writedown on its repo portfolio may raise fears of more losses to come.

"Managing down a 2.3 trillion Swiss franc mortgage-heavy balance sheet in a turning credit cycle will be costly and risky and could overhang the earnings power of business," Morgan Stanley said in a note to clients.

UBS, the European bank hit hardest by the credit crisis, has said it is well positioned to withstand further losses after raising 19 billion francs in emergency capital. Analysts largely agree that the bank could take more big hits without needing more emergency cash from shareholders or new investors.

But fears that the bank has become a hostage to fortune -- unable to offload about $90 billion in risky investments and subject to the whims of the U.S. real estate sector -- continue to weigh on its shares.

"UBS may choose to sell down its workout book of mortgages, taking larger upfront losses to reduce uncertainty on capital ratios," Morgan Stanley said.

UBS declined to comment.

NEW LOWS

UBS shares fell over 4 percent to a new five-year low before recovering slightly to trade down 1.55 percent at 31.74 francs, compared with a 1 percent fall in the DJ Stoxx European bank index (.SX7P). UBS shares have shed 42 percent in the past three months alone -- far more than any other major European bank.

Meanwhile, many analysts have increased their estimates of how much UBS stands to lose to the U.S. credit crisis.

Analysts at J.P. Morgan said they now expected UBS to write down 18.5 billion francs in total assets in the first quarter, compared with their previous estimate for 15 billion in writedowns, as a result of the Alt-A sale.

Merrill Lynch analysts said potential further writedowns at UBS could total $21 billion.

Analysts at Morgan Stanley said they had raised their worst-case potential loss estimates for UBS to $15-25 billion from previous estimates of $10-15 billion as a result of any Alt-A sale and repo repricing.

Analysts at bank Exane BNP Paribas said the Alt-A sale, if confirmed, would weigh on shares, as would reputational damage to the franchise.

"Worries on the eventual damage stemming from the bank's fall from the once-world-class wealth management franchise as well as uncertainty on the actual value of the toxic securities will inevitably continue to weigh on the stock price," Exane BNP Paribas said in a note to clients.

Speculation is rising that the group may seek a radical restructuring that could include the sale of its U.S. wealth management activities or the separate bourse listing of its flagship international private bank.

Gates dethroned; Buffett is richest

After 13 years as the wealthiest person in the world, Microsoft's co-founder drops to third place, behind the Oracle of Omaha and Mexico's Carlos Slim Helú. Buffett and Gates are the only Americans in the top 10.

Warren Buffett is the richest person on the planet.

Riding the surging price of Berkshire Hathaway (BRK.A, news, msgs) stock, the man called America's most beloved investor has seen his fortune swell to an estimated $62 billion, up $10 billion from a year ago. That massive pile of scratch puts him ahead of Microsoft (MSFT, news, msgs) co-founder Bill Gates, who had been the richest person in the world for the past 13 years.


No. 3:

Bill Gates


Gates is now worth $58 billion and is ranked third in the world. He is up $2 billion from a year ago and would have been perhaps as rich -- or richer -- than Buffett had Microsoft not made an unsolicited bid for Yahoo (YHOO, news, msgs) at the beginning of February. (Microsoft is the publisher of MSN Money.)

Microsoft shares fell 15% between Jan. 31, the day before the company announced its bid for the search-engine giant, and Feb. 11, the day we locked in stock prices for the 2008 World's Billionaires list. More than half of Gates' fortune is held outside Microsoft shares.

Mexican telecom tycoon Carlos Slim Helú is the world's second-richest person, with an estimated net worth of $60 billion. His fortune has risen $11 billion since last March.


No. 2: Carlos Slim Helú

No. 4: Lakshmi Mittal

No. 5: Mukesh Ambani
Buffett, whose fortune is estimated based on his stake in Berkshire Hathaway and assets he holds outside the company, declined to comment on his net worth.

The race for the title of world's richest person has been extremely competitive in recent months. Class A shares of Berkshire Hathaway soared 25% between mid-July and the day we priced our list. The stock hit an all-time high of more than $150,000 a share in December. At that time Buffett
was worth roughly $65 billion. Berkshire Hathaway shares closed at $137,100 per share Tuesday, down 2% since an announcement Friday that the company's net earnings had fallen 18% in the fourth quarter of last year.

AT&T to ramp up India operations

Calcutta, March 5: Global telecom major AT&T will increase its investment in emerging markets such as India to expand its infrastructure.

The company had earlier stated that it would target India to consolidate its mobile operations outside the US.

AT&T will invest $1 billion worldwide this year — up 33 per cent from last year — to build undersea cables and expand its network services.

Last year, AT&T spent $750 million outside the US of its total investment of $18 billion.

In India, it will set up three nodes and an Internet data centre. A node is a connection facility, either a redistribution or an end point, for data transmission.

A node is programmed to recognise, process or forward transmissions to other nodes.

AT&T has seven nodes in India and will add three, one each in Delhi, Pune and Calcutta. The Internet data centre will be set up in Bangalore, AT&T’s India CEO and managing director Sanjiv Bhagat told reporters in New Delhi.

He said the company was considering the option of setting up a customer briefing centre in India for product demonstration.

Revenues from India increased 85 per cent year-on-year in 2007, Bhagat said. He declined to give further details.

AT&T has applied for a mobile licence in India in partnership with Mahindra Telecommunications.

It plans to focus on large entities rather than on individual customers.

In the US, AT&T focuses on consumer operations while for its overseas operations, it caters to multinational companies.

Expansion in West Asia is also on the company’s radar.

The $1-billion investment will be mainly to build a subsea optical fibre cable in Asia and for an Ethernet network in Europe and Asia.

Google exec hired as Facebook's chief operating officer

Facebook announced Tuesday that it has wooed a top executive away from Google to be the hot online social networking website's chief operating officer.


Sheryl Sandberg is leaving her post as vice president of global online sales and operations at Google to manage marketing, human resources, business development and other day-to-day operations at Facebook.

"I have learned so much during my time at Google, and I've loved working with the people there," Sandberg said in a statement. "I am thrilled to have this opportunity."

The hire comes as Facebook strives to increase its global popularity by making its website available in an array of languages.

Facebook unveiled a German version of its website on Tuesday and promises to have it available in French by spring.

"We're really excited to bring German-speaking users the ability to access Facebook in their native language," said Facebook vice president of product management Matt Cohler.

"We currently have over a million active users in German-speaking countries."

Facebook unveiled a Spanish version of its website in February.

Software applications made freely available let people opt for Spanish or German instructions, alerts, news feeds and other information provided by Facebook as part of the user interface.

Facebook users can critique each other's translations, resulting in a communal effort to improve the software and build an accurate dictionary of terms.

Facebook users have always been able to post profiles, messages or other content in their native languages, but the framework for the website was only in English prior to February.

"Sheryl is a great manager who will help scale Facebook's operations globally," said Facebook founder and chief executive Mark Zuckerberg.

"Sheryl understands Facebook's goal of connecting everyone in the world and is passionate about building a business that will enable us to realize this mission."

Sandberg worked as a US treasury secretary's chief of staff prior to taking a job with Google six years ago. She will start her job at Facebook's headquarters in Palo Alto, California, on March 24, the company said.

Costco posts higher quarterly results

NEW YORK (Reuters) - Costco Wholesale Corp (COST.O) posted higher quarterly profit on Wednesday, meeting Wall Street estimates, and the No. 1 U.S. warehouse club operator posted a bigger-than expected gain in February sales at its locations open at least a year.

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Profit rose to $327.9 million, or 74 cents per share, for its fiscal second quarter ended February 17, compared with $249.5 million, or 54 cents per share, a year before.

Its year-ago results included a pretax charge of $84.4 million related in part to a stock options review.

Wall Street had, on average, forecast earnings of 74 cents per share, according to Reuters Estimates.

For February, its sales at warehouse clubs open at least a year, known as comparable store sales, rose 7 percent, helped by higher gasoline prices. Analysts, on average, were expecting a gain of 6 percent, according to 13 analysts polled by Reuters Estimates.

Customers pay an annual membership fee to shop in Costco's warehouse clubs, which sell everything from discounted flat-panel televisions and diamond rings, to bulk-sized packages of toilet paper and soda. Costco also operates gasoline stations at many of its locations.

The company's main rivals are Sam's Club, owned by Wal-Mart Stores Inc (WMT.N), and BJ's Wholesale Club Inc (BJ.N).

Warehouse clubs, like Costco, have been seen as a bright spot in the struggling U.S. retail sector as cash-strapped shoppers, worried about the weakening U.S. economy, have headed to the clubs in search of lower priced food and gasoline.

Quarterly sales rose to $16.62 billion from $14.8 billion a year earlier, while membership fee revenue rose to $342.92 million from $307.32 million.

Its quarterly comparable store sales rose 7 percent, with sales advancing 5 percent at its U.S. stores and 17 percent internationally.

During the quarter, Costco said the average sales price for a gallon of gasoline was up 29 percent. Excluding the effect of gasoline, its U.S. comparable sales in the second quarter would have been up 3 percent, it said.