Staples Says There's Little Credit, Compares Recessions

On Staples Q3 2007 earnings call, CFO John Mahoney says that consumer purchasing patterns over the summer invariably follow the news trends on a daily basis. Mahoney indicates he sees the U.S. economy as currently in a recession. Now it may not matter whether the media talks about it or not, credit is no longer readily available and retailers like Staples are seeing those effects on their bottom line.

Brad Thomas - Lehman Brothers

John, you had alluded to the recession in 2001. I was wondering if you could talk about some of the similarities and differences in the environment and the competitive landscape from what you saw back then versus what's going on right now.

John Mahoney, Vice Chairman, CFO, Staples, Inc.

It's been kind of interesting, every recession tends to be different. In 2001, right after the election when the election was up in the air for a while, demand seemed to fall off a cliff, particularly for the capital goods items. We think largely because capital was not available to small businesses after the dot-com bubble sort of burst caused that and it caused relatively weak demand for really about six quarters at that time in our business.

We have seen this be much slower. Over the course of the summer, I think there was a lot of uncertainty and Ron mentioned that we had choppy sales. It seemed to follow the news cycle. When there were bad stories, sales were bad and when that tailed off a little bit, sales improved a little bit. I think as capital became less available throughout the summer and into the fall, we've seen things really get to about where they are now.

I think that the same thing in terms of demand for capital goods items has occurred a little bit, but it's been later and it hasn't been as precipitous.