UPDATE 4-Staples sees sales improving after weak first quarter

Wed May 22, 2013 2:01pm EDT

* Maintains profit outlook for the year

* Says sales were weak in Europe, Australia in Q1

By Dhanya Skariachan

May 22 (Reuters) - Staples Inc stood by its full-year profit outlook and told investors it expected sales to improve through the year after the biggest U.S. office supply retailer by sales reported lackluster results in the first quarter.

The comments helped boost Staples shares more than 5 percent, to their highest level in a year. They had earlier fallen 1.6 percent after its sales and earnings missed analysts' estimates in the first quarter, hurt by a stronger dollar and weak sales in Europe and Australia.

"Our plan is certainly to accelerate from the first quarter every quarter this year and I think the online expansion is a big part of that, but we have also got a lot of new things coming on the retail side of our business," Chief Executive Ron Sargent told investors on a conference call.

Shares of Staples later trimmed their gains and were 3.5 percent higher to $15.26 in afternoon trade on Nasdaq.

The news on Wednesday came after rivals Office Depot Inc and OfficeMax Inc also reported weaker-than-expected results.

Office supply retailers, often seen as a barometer of economic health, have suffered as demand for their products fell after the recession in the United States and during the economic crisis in Europe.

These retailers also face strong competition from Amazon.com Inc and Wal-Mart Stores Inc in selling everything from pens and notebooks to furniture.

BB&T Capital Markets analyst Anthony Chukumba said he was encouraged by Staples' efforts to carry a bigger online assortment and to become more competitive on price.

Despite its disappointing results in the first quarter, Staples remains "the best house in a bad neighborhood," and will benefit from the pending merger between Office Depot and OfficeMax, Chukumba said.

The merger will probably mean fewer North American stores for the combined entity and one less competitor for Staples to bid against for large delivery contracts, Chukumba added.

The company's income from continuing operations fell to $170.4 million, or 26 cents a share, in the first quarter ended on May 4 from $192.9 million, or 28 cents a share, a year earlier. Analysts on average were looking for a profit of 27 cents a share, according removed to Thomson Reuters I/B/E/S.

Sales fell 3.5 percent to $5.81 billion, while analysts expected $5.91 billion. International sales fell 13 percent.

Besides weak demand in some overseas markets, Staples was also hurt by a stronger dollar, which reduces the value of overseas earnings when they are converted into dollars.

For the full year, Staples said it still expected sales to rise at a percentage rate in the low single digits, with earnings from continuing operations at $1.30 to $1.35 a share.

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