Staples posts higher-than-expected quarterly profit

Shares rose nearly 11 percent on the New York Stock Exchange as analysts view the retailer as one of the best positioned U.S. office supply chains.

STAPLES (SPLS.NQ)is "the clear leader in the office products category," but "a weakening macro environment will continue to weigh upon sales trends at the chain for at least the next few quarters," wrote UBS analyst Brian Nagel in a note.

Sales of office supplies have suffered as small-business customers contend with higher commodity costs, a drop in housing values and difficulty securing credit.

Rivals OfficeMax and Office Depot have predicted significant sales declines for the rest of the year amid the global financial crisis.

But Staples says tight expense control will help it survive a decline in average order size, slower traffic and weakness in orders of furniture, business machines and computers.

"The economic environment remains challenging and we saw particular weakness during October at the height of the financial crisis," Staples Chief Executive Ron Sargent said during a call with investors.

"We know from our experience during previous downturns that if we continue to take care of our customers, invest in the business and control expenses and capital spending, we'll come out on the other side even stronger than before," Sargent said.

ORDERS SHRINK

Net earnings fell 43 percent to $156.7 million, or 22 cents a share, in the third quarter that ended November 1 from $274.5 million, or 38 cents a share, a year earlier.

But excluding certain costs, including charges related to the acquisition of Corporate Express, Staples earned 42 cents a share, ahead of analysts' average outlook of 41 cents, according to Reuters Estimates.

Sales rose 34 percent to $6.95 billion.

Excluding the impact of Corporate Express, sales fell 3 percent to $5 billion, Staples said.

At North American retail stores, sales fell 6 percent, and sales at stores open at least a year were down 8 percent due to declines in both order size and customer traffic.

Because of the volatile economy, Staples could not provide a specific outlook for the fourth quarter or the following year, Chief Financial Officer John Mahoney said on a conference call.

Staples said it expects to spend $400 million on capital expenditures next year and sees opening 75 stores, unchanged from a previous view.

The strengthening of the U.S. dollar, which reduces the value of overseas sales, will hurt fourth-quarter earnings and probably "remain a drag" on profits early next year, the company said.

Staples said it expected annual synergies from the Corporate Express acquisition to build over three years to $300 million.

The company's shares rose 10.9 percent to $16.76 in morning trade on the NYSE.

(Reporting by Aarthi Sivaraman and Sarah Coffey; Editing by Maureen Bavdek, Lisa Von Ahn, Dave Zimmerman)