Staples Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Staples (SPLS) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

As the leading dedicated office-supply retailer, Staples has been fighting a big battle with online sellers to sustain its business. But a recent merger in the industry could have huge implications for the company looking forward. Let's take an early look at what's been happening with Staples over the past quarter and what we're likely to see in its quarterly report on Wednesday.

Stats on Staples

Source: Yahoo! Finance.

Will Staples get more business done this quarter?
Analysts haven't budged on their calls for Staples' profits over the past few months, with estimates showing their expectations for solid sales gains for the quarter but declining sales throughout fiscal 2014. The stock has jumped almost 15% since early December, though, due in large part to the recent consolidation in the industry.

For a long time, retail analysts have looked at office-supply stores as the next big-box victim of online cannibalization. Amazon.com (AMZN -1.11%) has pushed its AmazonSupply website as an alternative to traditional retailers, promising free two-day shipping on orders over $50 and leveraging its strong reputation in retail toward businesses. Yet Staples stands out from its competitors for a couple of important reasons, including its own extensive online sales and its impressive distribution network. Combined with store-brand office supplies that help the company maintain higher margins, Staples has a competitive advantage over its big-box rivals in the space.

That may be a big part of why OfficeMax (NYSE: OMX) and Office Depot (ODP -0.95%) finally decided to tie the knot last month. The two rivals estimate that synergies from the merger could reduce costs by $400 million to $700 million and lead to a more efficient combined operation. Yet Staples also soared on news from the merger, likely in hopes that coming store closures at OfficeMax and Office Depot will help it gain share in the markets where the newly merged company chooses to reduce its exposure.

In its quarterly report, look for how Staples' management discusses its response to the coming merger. With some speculation about a possible buyout bid for Staples, how the company positions itself going forward could make a big difference in whether its recent share-price rise lasts.

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