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Staples Inc. reported lower-than-expected quarterly results on higher costs and weak demand for office supplies, prompting the top U.S. office supply chain to slash its full-year outlook.

The news, which sent its shares down more than 8 per cent on Wednesday, came less than a month after smaller rivals Office Depot Inc. and OfficeMax Inc. also posted weak quarterly sales as corporate customers and shoppers spent less on office supplies.

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Some analysts have wondered why recent improvements in the U.S. economy have not trickled down to a sector traditionally seen as a barometer of economic health.

The industry leader now sees 2011 net earnings of $1.35 to $1.45 a share, down from its prior view of $1.50 to $1.60.

The company, which said it expects very little improvement in the economy in 2011, is less optimistic about sales as well. It sees a sales rise in the low single digits versus its prior forecast for a rise in the low to mid-single digits.

Some analysts say the office supply sector is becoming less relevant, with businesses and shoppers buying office supplies from online retailers such as Amazon.com Inc. or independent chains.

Nomura analyst Aram Rubinson downgraded Staples earlier this month, despite his belief that the chain is "run by some of the best retail executives around."

"Though we think Staples is a far better operator, we believe that the issues facing Office Depot and OfficeMax are not expressly cyclical or company-specific," Mr. Rubinson said at the time. "Rather, the office sector is fighting a secular battle for relevance."

Staples said its profit rose to $198.2-million, or 28 cents a share, in the first quarter, ended April 30, from $188.8-million, or 26 cents a share, a year earlier.

Analysts on average were expecting 32 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 2 per cent to $6.17-billion, missing the analysts' average estimate of $6.20-billion.

"We are gaining share in North America, but at a cost to our bottom line," Staples chief executive officer Ron Sargent said.



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