NEW YORK (Bloomberg) <\m> Costco Wholesale Corp., which sells everything from $200 Coach handbags to cases of Gatorade to its club members, said first-quarter profit rose 10 percent, helped by demand for fresh food and computers.Net income climbed to $236.9 million, or 51 cents a share, beating analysts’ estimates, from $215.8 million, or 45 cents, a year earlier, the biggest US members-only retailer said today in a statement. Revenue, including membership fees, grew 9.4 percent to $14.2 billion in the three months ended November 26.

Costco has outpaced Sam’s Club, a unit of Wal-Mart Stores Inc., and BJ’s Wholesale Club Inc. in sales at stores open at least a year by offering luxury goods, groceries and its own Kirkland brand of items ranging from vitamins to cruises. Same- store sales climbed 4 percent worldwide at Costco. Demand for appliances, computers and prescriptions boosted profit.

“They know their markets, they know what they’re trying to do, and they have a little more upscale customer,” said Donald Gher, chief investment officer at Coldstream Capital Management in Bellevue, Washington, with more than $1 billion in assets including Costco shares.

Shares of Costco, which has about 500 stores worldwide, rose $1.26, or 2.4 percent, to $54.40 at 1:48 p.m. in Nasdaq Stock Market composite trading. The stock has gained ten percent this year.

Costco projected an after-tax expense of about $45 million in the second quarter as it revises exercise prices on stock options issued to employees and compensates them for related tax losses. The tax programme affects more than 1,000 staff, according to the company, which expects to recover about $25 million over the next few years when employees exercise those revalued options.

Costco cut the top end of its profit forecast to $2.60 a share for the year ending in August from as much as $2.65 projected in October. The bottom of the range remains $2.50. The company is “still pretty comfortable” with Thomson Financial’s average estimate of $2.59, Chief Financial Officer Richard Galanti said during the company’s conference call.

Second-quarter profit will be 62 cents to 66 cents, Galanti said. Analysts on average estimate 67.5 cents, according to the Bloomberg survey.

Flat-screen televisions, computers, toys and fresh foods were among the strongest categories in the quarter, Galanti said. Same-store sales of prescription drugs rose “in the high single digits.” Comparable sales at US Costco’s gained three percent.

The average first-quarter estimate of 18 analysts compiled by Bloomberg was 50 cents, matching that of Citigroup Inc.’s Deborah Weinswig, Institutional Investor’s top-ranked retailing analyst for 2006.

Selling, general and administrative costs were unchanged at 10 percent of sales. Gross margin, or the percentage of sales left after subtracting the cost of goods sold, narrowed to 10.56 percent from 10.58 percent.

Gasoline prices, which averaged $2.29 a gallon the week ended December 11, are down 25 percent from an August high of $3.04. Costco, which replenishes its gasoline stores daily and prices below competitors, benefits when wholesale costs fall.

Costco’s sales at stores open at least a year averaged eight percent in the most recent fiscal year compared with five percent at Sam’s Club and 3.6 percent at BJ’s.

“Costco is extending an already-substantial lead in productivity and profitability,” Edward Weller, an analyst at ThinkEquity Partners LLC in San Francisco, wrote in a Dec. 5 report. He rates the shares “buy.”

Last week, Costco introduced a programme to sell 100 pills of some generic drugs for $10. The program covers 200 generic prescriptions, Galanti said, and Costco will continue to add to the list.

He said the company will probably offer fewer than the 331 drugs, encompassing 143 compounds, offered by Wal-Mart. Wal-Mart in September started selling a month’s supply of those drugs for $4 and has expanded the pricing to all of its pharmacies. Costco originally matched the offer.

The 100 pills for $10 programme replaces the $4 price, Galanti said. “We matched the $4 because we wanted to remain competitive, but we lost money on it,” he said on the call. The new program is profitable and a better deal for customers, he said.

BJ’s said last month its chief executive, Mike Wedge, retired, prompting the largest share surge in three years on speculation that the Natick, Massachusetts company was a takeover target. BJ’s has added fresh foods and its own brands to lift sales.

In October, Costco said it found “imprecision” in a 1997 option grant to top executives. Following a review of its past practices, Costco did not anticipate restating results.

“We do not intend for our options-holding employees to be penalized for historical issues associated with some of our stock-option grants,” Costco Chief Executive Officer Jim Sinegal said in a regulatory filing today.

Among 20 analysts tracked by Bloomberg over the past year, 11 have “hold” ratings, seven say “buy” and two say “sell”.