Office products retailer Staples Inc gave a weaker-than-expected forecast for 2010, as it invests to expand its store base and technology business, sending its shares down more than 7 percent.

Staples, which also missed profit expectations in the holiday quarter, said it was not planning for a big economic recovery this year. It forecast earnings of $1.23 to $1.33 a share before items, while analysts were expecting $1.40 per share, according to Thomson Reuters I/B/E/S.

This guidance assumes a modest economic recovery throughout 2010 and increased investment in our growth ideas, Staples said on a conference call, citing areas where it has low market share, such as business technology and copy and print.

Staples shares fell 7.6 percent to $23.89 in morning trading on Nasdaq. Shares of smaller rivals Office Depot and OfficeMax fell roughly 2 percent after the tepid forecast from the industry leader raised concerns about a recovery in business spending.

Investors often look at this sector for a pulse of the economy as demand for office supplies is closely tied with white-collar employment rates.

Staples said it plans to open about 40 stores in North America in 2010, slightly more than the 36 net new stores it opened in 2009.

Credit Suisse analyst Gary Balter said Wall Street may also have been overly bullish when estimating cost savings from Staples' acquisition of Dutch rival Corporate Express.

Following the July 2008 acquisition, many analysts expected Staples to benefit more than rivals from an improvement in spending at small businesses and other corporate clients.

Still, Oppenheimer analyst Brian Nagel said he viewed Staples as one of the best-positioned names for 2010.

Nagel said expectations had climbed lately due to strengthening sales trends at rival chains and on prospects for better employment in the United States.

SALES TRENDS IMPROVE

Office-supply retailers, which saw corporate clients and other shoppers turn frugal in the recession, are finally seeing customers return as the economy improves.

Staples said quarterly sales rose 4 percent to $6.41 billion, beating analysts' average estimate of $6.30 billion. Total operating costs rose about 7 percent in the period.

Fourth-quarter net earnings fell to $238.8 million, or 32 cents a share, from $289.1 million, or 40 cents a share, a year earlier.

Excluding one-time items, it earned 38 cents a share, a penny short of analysts' average forecast, according to Thomson Reuters I/B/E/S.

Staples expects sales to rise at a mid-single-digit percentage rate in the current quarter, and forecast quarterly earnings of 25 cents to 27 cents a share before one-time items. Analysts expected 27 cents a share.

Last month, both Office Depot and OfficeMax posted better-than-expected quarterly results and said sales trends were perking up.

Sales at Staples' North American stores open at least a year, or same-store sales, were up 3 percent on demand for computers, ink and toner. However, sales of big-ticket items like business computers and furniture continued to be tepid.

UBS analyst William Truelove said same-store sales fell short of his expectations for a 5 percent increase, but the North American delivery segment -- which includes corporate and contract customers -- performed much better than he expected.

(Reporting by Dhanya Skariachan; Editing by Derek Caney, John Wallace, Dave Zimmerman)

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