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Staples quarterly profit beats Street by penny

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

A Staples store display window is pictured in New York, May 20, 2008. REUTERS/Shannon Stapleton

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

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