UPDATE 3-Staples signals weakness likely to persist; shares fall
* Sees full-year earnings below Wall Street estimates
* Shares down nearly 7 percent
* Quarterly earnings just exceed analysts' view, but sales miss
* Raises dividend 9 percent to $0.12 per share
March 6 (Reuters) - Staples Inc, the largest U.S. office supply chain, forecast weak earnings this year as corporate customers and other shoppers cut back on buying items such as computers, and its shares fell nearly 7 percent on Wednesday.
Staples, whose largest rivals are getting ready to merge, also raised its quarterly dividend by 9 percent to 12 cents per share.
The company forecast full-year earnings of $1.30 to $1.35 per share, trailing analysts' expectations of $1.43, according to Thomson Reuters I/B/E/S.
Earnings for the fourth quarter ended Feb. 2 came in just ahead of Wall Street expectations, but Bernstein analyst Colin McGranahan said the results were "fairly weak" because they were bolstered by factors such as lower incentive compensation and marketing spending.
Gross margins remain under pressure, McGranahan said in a research note.
Sales of computers, digital cameras and software continued to be weak, in part due to a disappointing introduction of Microsoft Corp's Windows 8, Staples said.
Office supply chains are struggling to fend off Wal-Mart Stores Inc, Amazon.com Inc and other rivals that compete on price in selling everything from pens to furniture to government, businesses and individuals.
As a result, Office Depot Inc and OfficeMax Inc last month decided to combine in a $976 million all-stock deal, which is subject to investor and regulatory approval.
Staples started its own overhaul last year and continues to close some stores, reduce the size of others and take other steps such as overhauling the selection of products it offers online.
"We know we have got a lot of work ahead of us, but this isn't the first time we have transformed Staples to meet the needs of our customers," Chief Executive Officer Ron Sargent said during a conference call.
Staples began as a cash-and-carry retailer, or warehouse type of chain, before expanding into delivery, online ordering and international markets, Sargent said.
Sargent congratulated his rivals on their proposed merger and said it was too early to say how much impact it would have.
Citi analyst Kate McShane recently upgraded Staples to "neutral" due to its potential to benefit from its rivals' deal, including the lift it could get if those chains close stores in areas such as the Southeast and Midwest.
"However, we are still neutral to negative on the office supply industry," she said in a note, citing declines in sales of paper products, a shift toward lower-margin technology products, the weak European economy and intensifying online competition.
Many investors look at office-supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates.
Last year, Staples had outlined its plan to cut costs by closing stores, but that blueprint did not pass muster with some on Wall Street, who were looking for deeper cuts in North America and Europe.
The company now sells items ranging from medical and safety supplies to accessories such as earbuds and covers for Apple Inc devices. It tripled its online assortment and will also start opening 12,000-square-foot "omni-channel" stores with online shopping kiosks this quarter.
Sales at stores open at least a year fell 5 percent in North America during the fourth quarter, while in Europe they decreased 9 percent, mainly because fewer customers visited, the company said.
In the United States, Superstorm Sandy cut into fourth-quarter same-store sales, online sales and sales in the commercial unit that sells to corporate clients. More competition at the start of the holiday season also hit same-store sales, Staples said.
Net income fell to $78.1 million, or 12 cents per share, in the fourth quarter from $283.6 million, or 41 cents per share, a year earlier.
Excluding charges for store closings and restructuring, the company earned 46 cents per share, topping the analysts' average estimate by 1 cent, according to Thomson Reuters I/B/E/S.
Overall, sales rose 3 percent to $6.56 billion, but missed Wall Street's average expectation of $6.72 billion.
Shares of Staples were down 6.8 percent at $12.39 in morning trading.