Top office supply retailer Staples Inc forecast quarterly earnings slightly below Wall Street expectations after winter storms weighed on results in the prior period.

Many investors look at office supply retailers as a barometer of economic health because demand for their products is closely tied to white-collar employment rates. Their sales have suffered as consumers and small businesses spend less.

But Staples has consistently outperformed smaller rivals Office Depot and OfficeMax in the past two years. It stands to gain even more as it expands its high-margin copy and print and technology services, analysts have said. For a graphic comparing the three companies, click http://r.reuters.com/vet38r.

I think that Staples is the least risky way to play the office supply retailing space because they are the largest and the fastest-growing and the most profitable and the most consistent, BB&T Capital Markets analyst Anthony Chukumba said. He also praised Staples' management team.

The company, which expects a modest improvement in the economy in 2011, sees sales rising at a low single-digit percentage rate in the first quarter, with earnings of 30 cents to 32 cents a share. Analysts on average were expecting a profit of 33 cents, according to Thomson Reuters I/B/E/S.

Shares of Staples fell 1.7 percent to $20.50 in trading before the market opened.

Last month, OfficeMax missed quarterly sales expectations and gave a cautious outlook for 2011 as it sees little help from the economy. Office Depot also reported a decline in quarterly sales.

Staples' net income rose to $274.7 million, or 38 cents a share, in the fourth quarter ended on January 29 from $233.9 million, or 32 cents a share, a year earlier.

Excluding a restructuring expense, Staples earned 39 cents a share, missing the analysts' average estimate of 40 cents.

Sales rose about 0.1 percent to $6.42 billion, but came in below analysts' expectations of $6.48 billion.

While the fourth quarter was challenging primarily due to the impact of winter storms, sales have recovered in the first quarter, Chief Executive Officer Ron Sargent said on Wednesday.

Staples said the weather had hurt sales by about $70 million and earnings by about 3 cents a share in the fourth quarter.

About a third of Staples' store base is in the U.S. Midwest and Northeast, where the storms hit, Citi analyst Kate McShane wrote on Wednesday.

Sales at North American stores open at least a year fell 2 percent due to both the weather and weak demand for computers.

For its new fiscal year, the company backed its previous forecast for a sales rise in the low to mid single-digit percentage range and earnings per share of $1.50 to $1.60.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Derek Caney)

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