CHICAGO (AP) ¿ Recession-weary customers are still putting off big-ticket purchases from office-supply chain Staples Inc., but the retailer said it's beginning to see smaller declines in foot traffic and sales to small businesses.

The chain's tepid first-quarter results, released Wednesday, show the limping U.S. economy may finally be digging itself out of its slump by the end of the year, executives said Wednesday.

"I think the economy still looks pretty choppy out there," Chairman and Chief Executive Ron Sargent told investors during a conference call. "But I do believe that we're kind of slowly heading toward recovery mode."

Among the signs of progress during the quarter:

¿ Sales through Staples Business Delivery and Quill, which targets companies with less than 100 employees, posted low double-digit sales declines, an improvement from the fourth quarter. Staples President and Chief Operating Officer Mike Miles said that was a sign "confirming the sense we're getting at retail that the small-business segment has stabilized."

¿ Same-store sales in the U.S. ¿ a key retail industry metric of sales in stores open at least a year¿ fell 8 percent, better than the fourth quarter's 13 percent decrease. And comparable-store customer counts fell 2 percent, better than the mid-single digit declines posted at the end of the 2009 fiscal year.

Still, not all the news was good for the world's largest office supply retailer.

Profit at the Framingham, Mass.-based retailer fell by one-third, and customers ¿ particularly big corporations, where layoffs are ongoing and fewer employees means less need for office supplies ¿ ordered less merchandise and spent less money on each order. They also continued to shy away from buying expensive items like office furniture and printers.

For the three months that ended May 2, Staples earned $143 million, or 20 cents per share. That's down from the previous year's profit of $212.3 million, or 30 cents per share.

Excluding one-time items related to last summer's acquisition of Dutch office-supply company Corporate Express NV, the retailer's profit in the latest quarter was 22 cents per share, down about 27 percent.

Analysts polled by Thomson Reuters expected Staples to earn 21 cents per share. Those estimates typically exclude one-time costs.

Sales, meanwhile, grew 19 percent to $5.82 billion from $4.88 billion, helped by the Corporate Express business. Analysts predicted revenue of $5.85 billion.

Standard & Poor's cut its recommendation on Staples to "Hold" from "Buy," despite the better-than-expected profit and same-store sales results.

Retail analyst Michael Souers told investors that was because Staples' contract customers are buying items that bring in less profit to Staples.

"We continue to forecast pessimistic business conditions in the near-term," he wrote in a research note, but added he expects the retailer to ultimately gain market share from competitors, some of whom are closing stores, and benefit from the closing of Circuit City Stores Inc.

Staples shares lost 46 cents, or 2.3 percent, to close at $19.93 Wednesday.


AP Retail Writer Lauren Shepherd in New York contributed to this report.


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