Staples CEO Doesn't See Another Recession

Staples Inc. (SPLS) Chief Executive Ron Sargent said the U.S. economy remains in "purgatory," but the threat of another recession is low.

Sargent, speaking at the Goldman Sachs retail conference in New York, described the back-to-school season as "OK," and neither "robust" nor "a downer." Smaller rival OfficeMax Inc. (OMX), which will present at the conference later Wednesday morning, earlier Wednesday said its back-to-school season was "soft," and it now expects current quarter sales to be slightly lower than the year-ago period. Office Depot Inc. (ODP), also a presenter later Wednesday, separately said its third quarter will see comparable-store sales fall but margins improve, the result of eliminating popular but lower margin products like entry level laptop computers.

Staples didn't provide new guidance for its fiscal third quarter, and Sargent said he continues to expect earnings for the fiscal year to grow 10% to 15% over last year.

Staples' dividend yield of 2.9% is attractive at the stock's current prices, with shares at $13.63, which is down 27% over the past year. Sargent said it expects to raise the dividend in line with earnings and, at current prices, share repurchases might be the "best investment" it can make with its free cash flow.

Addressing competition from Amazon.com Inc. (AMZN) and its cut-throat pricing, Staples said its rewards programs, with 10% and 15% discounts, make its prices for popular printer ink and toner cartridges competitive, but noted that price cuts may be in order.

Staples still has room to grow its store base, the executive said, despite what many see as an office-supply sector suffering from a glut of retail locations. It doesn't have stores in markets like St. Louis, Buffalo, N.Y., Memphis, Tenn. and New Orleans, he said, but it will some day.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

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