Staples cites cautious consumer spending

By Karen Jacobs

ATLANTA (Reuters) - Retailer Staples Inc (SPLS.O) is counting on customer service and bargains on pencils and paper to spur sales this back-to-school season, its chief financial officer said on Tuesday.

"The credit crisis has probably seen its worst, but that doesn't mean that credit has eased much," John Mahoney said in a telephone interview. "As a result, I think the consumer is being very careful about any discretionary spending and is only buying the things that they need."

Staples, the biggest U.S. office supply chain, bought cautiously for the back-to-school season this year, which is expected to extend through late September, Mahoney said.

"We're expecting that the back-to-school season overall is not going to be ... booming," he said. Initiatives with service and merchandising will allow his company "to get more than our share of the back-to-school market" this year, he said.

For example, Staples is already offering so-called "First Bell" deals such as an eight-pack of No. 2 pencils for a penny, to kick off the U.S. school shopping season, which usually starts in August.

Office supply retail sales have been hurt as small business customers cut spending. Small business customers, who represent about 70 percent of Staples store sales, needed assurance that fuel prices and the real estate market would stabilize before their spending picks up in earnest, Mahoney said.

"I really think people are going to have to feel more confident that gas prices aren't going to go up endlessly, that there's been a bottoming of the real estate market and that they're going to have some credit availability that will give some cushion," he said.

When small businesses do buy, they are opting for necessities such as ink and paper and delaying purchases of bigger-ticket items such as furniture, Mahoney said.

OFFICE DEPOT WARNS

Office Depot (ODP.N) said on Tuesday its sales at existing stores fell nearly 10 percent in North America in the second quarter and warned operating margins would fall more than expected. The Delray Beach, Florida company cited "additional pressure from weakening business conditions."

But Mahoney said Staples, which is based in Framingham, Massachusetts, was hoping to weather the economic environment better than its smaller rival.

"With the brief statement (Office Depot) made, it's hard for us to understand what exactly is driving their business," Mahoney said.

"I would hope through some of the initiatives we're taking to try and manage the things that are within our control, that it would result in us not suffering quite as much as maybe they have," he said.

The acquisition of Dutch office supply company Corporate Express NV CXP.AS was expected to close soon, but Mahoney cautioned that Staples was unlikely to disclose details on cost savings or other impacts until August.

"We don't see anything structural about Corporate Express's business that would lead you to believe that the (Corporate Express) U.S. business can't earn operating margins similar to what we have in the U.S. broadly over some period of time," Mahoney said. "We're very optimistic that it's going to be a very successful deal for us."

(Editing by Leslie Gevirtz)