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Cost controls help Staples beat profit forecasts, shares rise

A Staples office supplies store is pictured in Burbank, California May 13, 2008. REUTERS/Fred Prouser
A Staples office supplies store is pictured in Burbank, California May 13, 2008. REUTERS/Fred Prouser

(Reuters) - Staples Inc's quarterly profit edged past Wall Street's estimates as the largest U.S. office supply chain cut costs and sales in North America held up, although weakness in Europe and Australia hit overall revenue.

Shares of the company, which also reiterated its full-year profit and sales forecasts, rose 4.5 percent in early trading.

Staples outlined plans in September to close 30 stores in North America and 45 stores in Europe.

"These results indicate that Staples' restructuring plans are stemming the declines in the business," J.P. Morgan Securities analyst Christopher Horvers wrote in a client note.

Results from smaller rivals Office Depot Inc and OfficeMax Inc last week also showed how they relied on tight cost controls to offset weaker-than-expected sales in the third quarter.

Office supply chains are considered a good gauge of economic health because demand for their products is closely tied to white-collar employment rates.

Staples, whose shares were down 20 percent this year up to Tuesday, plans to tweak its product offering to boost sales as U.S. shoppers are increasingly choosing mobile computing devices such as tablets and e-readers over traditional computers.

"Customers that once only needed paper, ink and toner now need tablets and smartphones and technology accessories. (They) also want the convenience of mobile shopping and fast delivery," CEO Ronald Sargent said on a post-earnings conference call.

The company is building its online sales and mobile commerce businesses as it tries to fend off competition from online chains such as Amazon.com Inc .

Sales at Staples have suffered as corporate customers and other shoppers cut back on discretionary spending in the weak global economy, forcing the chain to keep a tight lid on costs.

But Staples reported North American delivery sales rose 1 percent in the third quarter even as retail sales remained flat. Overall sales fell about 2 percent to $6.35 billion.

Analysts on average were looking for revenue of $6.45 billion, according to Thomson Reuters I/B/E/S.

Staples' adjusted profit of 46 cents per share beat estimates by 1 cent per share, although restructuring costs took it to a net loss. The company incurred impairment and restructuring charges of about $840 million in the quarter.

The company posted a net loss of $596.3 million, or 89 cents per share, compared with a profit of $326.4 million, or 47 cents per share, a year earlier.

(Reporting by Ranjita Ganesan, Chris Peters in Bangalore and Dhanya Skariachan in New York; Editing by Don Sebastian, Rodney Joyce and Ted Kerr)

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