Top U.S. office products retailer Staples Inc gave a lackluster outlook for the rest of its fiscal year and reinforced growing industry expectations for a slower U.S. economic recovery.

Staples, which posted a slightly better-than-expected quarterly profit on Thursday, said it expected sales to rise at a low-single-digit percentage range for the year, with earnings of $1.25 to $1.33 a share before items.

Analysts on average were expecting a profit of $1.33 a share, according to Thomson Reuters I/B/E/S.

Many investors look at office supplies retailers as a barometer of economic health since demand for their products is closely tied to white-collar employment rates.

On a conference call, Staples executives said they were not betting on a big time recovery but were looking for slow and steady progress instead.

The news came less than a month after smaller rival OfficeMax said it expected the U.S. economy to recover more toward the back half of 2010.

But quarterly numbers from No. 2 U.S. office supplies retailer Office Depot had depicted a weaker market after store closures, higher advertising expenses and weakness in California weighed on its profits.

We expect a cautious environment for business spending throughout the fiscal year, Standard & Poor's Michael Souers said in a note to clients.

In the current quarter, Staples expects sales to rise in the low-single digits and earnings of 18 cents to 20 cents a share before items. Analysts had forecast 20 cents a share.

Staples shares rose 0.5 percent, compared with a 2.6 percent drop in the Standard & Poor's 500 Index <.SPX>. OfficeMax shares fell 5.5 percent and Office Depot shed 4.5 percent.


While Staples' European retail business has remained weak, it expects limited impact from upcoming budget cuts in some southern European countries as it did not have a huge government business there.

It expects Europe to be more of a margin story and less of a sales growth story this year.

In the latest first quarter that ended on May 1, Staples earned $188.8 million, or 26 cents a share, up from $143 million, or 20 cents a share, a year earlier.

Excluding items, the company earned 28 cents a share, beating the analysts' average forecast of 27 cents, according to Thomson Reuters I/B/E/S.

Sales rose 4 percent to $6.06 billion. Sales at Staples' North American stores open at least a year rose 1 percent.

In its North American delivery business that caters mainly to business clients, the company gained more customers but existing customers purchased less.

(Reporting by Dhanya Skariachan; editing by Lisa Von Ahn, Maureen Bavdek and Andre Grenon)