WRAPUP 2-Target, BJ's Profits Show Shopper Spending Caution

* Target Q1 EPS $0.99 tops Wall St view $0.94

* BJ's Wholesale Q1 EPS 62 cents tops St view 56 cents

* BJ's raises FY EPS forecast to $2.68-$2.82

* Target shares down 3 percent; BJ's up 2 percent (Adds comments from Target conference call, analyst)

By Jessica Wohl

CHICAGO (Reuters) - Shoppers are spending cautiously because of higher food and gas prices, results reported Wednesday by Target Corp and BJ's Wholesale Club Inc showed.

The results suggest discretionary spending, and therefore retailers' margins, may remain under pressure this year.

Investors were most concerned about Target's prospects, as its shoppers continue to buy food and other basics and shun less essential items.

The U.S. recovery will continue to be slow and uneven, particularly for more moderate-income households, Target Chief Executive Gregg Steinhafel said during a conference call.

Target also said it plans to close on some Canadian leases earlier than expected, leading to higher costs this year.

"The overall business needs to gain further traction to get people comfortable," Susquehanna Financial Group analyst Bob Summers said of Target, which he rates "positive."

In general, retail earnings looked all right in the quarter ended around April 30, said Kurt Salmon retail strategist John Long, but shoppers were largely absorbing higher costs just on food and gasoline and had yet to face looming increases other goods.

"We're already starting to see a little bit of margin pressure," Long said. "And we think that as we get into the summer and fall, when we see bigger price increases ... that may cause some consumers to pull back."

At Target, more shoppers have signed up for the chain's credit and debit cards, which offer a 5 percent discount. While that leads people to come in more often, they are using those cards to buy basics such as food, which carry lower margins than clothing and other items.

At BJ's, the No. 3 U.S. warehouse club chain, shoppers traded down in both brands and package sizes, Chief Financial Officer Bob Eddy said during a conference call.

Other results were mixed, as Abercrombie & Fitch Co gained market share while Staples Inc missed expectations.

Target shares were down 3 percent in afternoon trading, while BJ's was up about 2 percent and Abercrombie almost 3 percent. Office supply seller Staples plunged over 15 percent.

On Tuesday, Wal-Mart Stores Inc said its customers were showing pronounced signs of living paycheck-to-paycheck, as sales at its U.S. discount stores open at least a year had fallen for two straight years. Its shares dipped 0.8 percent.

TARGET SHARES DROP

After Target Chief Financial Officer Doug Scovanner suggested that analysts' expectations might be a tad too lofty, shares dropped.

Target had announced plans to buy leases on up to 220 Zellers discount stores from Hudson's Bay Co back in January, and is set to open its first Canadian stores in 2013. Getting some leases earlier than expected will push more of the costs associated with its plans into the current fiscal year.

"While not completely unanticipated, incremental expenses associated with the Canadian build-out are not absorbed so easily right now," Susquehanna's Summers said.

Target's earnings came in 5 cents a share above Wall Street's expectations, but some of the gains came from soaring profitability in its credit card business.

Target's total profit rose 2.7 percent to $689 million in the first quarter ended April 30. Earnings in the credit card business jumped nearly 75 percent to $194 million.

Selling more fresh produce and signing up more shoppers for its credit cards have reduced gross margin, which slipped to 30.4 percent from 31.3 percent in the quarter.

"The Street is having a real problem getting a handle on where this gross margin is going," with the 5 percent reward program and the increased sales of food, said Wall Street Strategies analyst Brian Sozzi.

Target also said prices of apparel and home goods could rise in double-digit percentages this fall as costs increase.

Target's results came two days after hedge fund manager William Ackman, who had unsuccessfully pushed for changes at the chain, disclosed that he had sold his shares in the company.

FOOD SELLS WELL AT BJ'S

BJ's posted a bigger-than-expected rise in profit and raised its annual earnings forecast as people shopped its stores more often for food and gasoline.

BJ's sold more food, but sales of items such as apparel, books, cigarettes, diapers and televisions fell.

As gasoline prices rise, BJ's and larger rivals Costco Wholesale Corp and the Sam's Club unit of Wal-Mart get increased business at their pumps.

Still, about 1 percent of BJ's customers are not renewing their memberships after the annual fee rose by $5 to $50.

BJ's did not give any update on its ongoing review of options, including a potential sale. (Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Gerald E. McCormick)