UPDATE 3-Staples quarterly profit beats Street by penny

* Q1 EPS ex-items 22 cents vs. 21-cent estimate

* Corporate Express segment strong

* Say headcount cuts at customers hurt sales

* Staples shares up slightly; peers' stocks up
(Recasts, adds comments by Staples executives, updates stock
activity)

By Dhanya Skariachan

NEW YORK, May 27 (Reuters) - Top office products retailer
Staples Inc (SPLS.O) reported slightly higher-than-expected
quarterly earnings on Wednesday, bolstered by its Corporate
Express unit.

Staples, which bought Dutch rival Corporate Express in July
last year, said it still expected to save up to $300 million in
costs from the acquisition.

The retailer added it was on track with its Corporate
Express integration efforts, including pricing negotiations with
vendors and reducing the percentage of small orders.

Last month, Staples' rivals OfficeMax Inc (OMX.N) and Office
Depot (ODP.N) beat Wall Street estimates after cost cuts helped
them offset a sharp decline in sales.

Like its peers, Staples has reduced headcount, frozen senior
manager salaries, eliminated corporate-staff bonuses and
curtailed store-opening plans in North America to cut costs.

Net earnings at Staples fell to $147.0 million, or 20 cents
a share, in the first quarter that ended May 2 from $212.2
million, or 30 cents a share, a year earlier.

Excluding integration and restructuring expenses of $19
million, Staples earned 22 cents a share, a penny ahead of the
average Wall Street forecast, according to Reuters Estimates.

THE CUPBOARD IS BARE

The U.S. recession has hit office supplies sellers hard as
consumers and small businesses cut back on buying big-ticket
items like furniture and computers.

On a conference call with analysts, the retailer said
headcount cuts at some of its existing contract customers hurt
sales in the quarter.

"There's obviously far less headcount, and when headcount
comes out there is sometimes excess inventory left in people's
offices that they're living off for a while," said Joseph Doody,
president of Staples' North American Delivery unit.

"It is safe to say that the cupboard is bare. Companies have
been raiding the supply chain or supply cabinet for the last six
months," Staples CEO Ronald Sargent said on the call.

Including Corporate Express, sales rose 19 percent to $5.82
billion in the quarter.

North American retail sales fell 9 percent to $2.2 billion
as sales at existing stores fell 8 percent, reflecting declines
in average order size and weakness in durable goods such as
business machines and furniture.

Staples shares were up 15 cents at $20.54 in midday trading
on the Nasdaq.

OfficeMax (OMX.N) shares were up 2.1 percent at $8.31, while
Office Depot's (ODP.N) stock was up 8.5 percent at $4.48 on the
New York Stock Exchange.
(Editing by Lisa Von Ahn, Derek Caney and Matthew Lewis)