On Wednesday, Macy's (NYSE:M) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings 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 a major retailer, Macy's has relied on the revival of the American consumer to recover from the financial crisis. But with its recovery now complete and the stock trading at new highs, the retailer now faces different threats. Let's take an early look at what's been happening with Macy's over the past quarter and what we're likely to see in its quarterly report.

Stats on Macy's

 

 

Analyst EPS Estimate

$0.53

Year-Ago EPS

23%

Revenue Estimate

$6.39 billion

Change From Year-Ago Revenue

4.1%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Macy's keep its earnings streak alive this quarter?
Analysts have gotten increasingly optimistic in recent months about Macy's and its earnings prospects for the just-ended quarter. They've boosted first-quarter estimates by $0.03 per share and raised their fiscal 2014 projections by more than quadruple that amount. All that has helped support the stock's price, which has climbed more than 20% since early February.

The big news for Macy's this quarter has all come from its lawsuit with J.C. Penney (NYSE:JCP), in which Macy's argued that Penney shouldn't be allowed to sell a line of home goods from Martha Stewart Living (NYSE:MSO) because of a prior contract Macy's had with the home-good producer. Late last month, an appeals court rejected Macy's request to issue a preliminary injunction, instead allowing Penney to sell its JCP Everyday line while the broader lawsuit between Macy's and Penney is outstanding. Both sides finished making their cases on April 23, and with a deadline of May 31 for parties to submit post-trial filings, it'll be a while before Macy's makes its closing arguments and the judge renders a verdict.

But what many people have ignored about Macy's is the improving fundamental economic picture for retail. Although Macy's doesn't report monthly sales figures, one measure of same-store sales for the sector overall rose 4.7% in April, accelerating from less dramatic but still solid 2.2% growth in March. Moreover, Macy's issued encouraging guidance in its original 2013 outlook, standing out compared to less optimistic rivals that expected a more challenging year.

The big question Macy's faces is whether shoppers who abandoned Penney will now return after Penney went back to its coupon-discount business model. Gaining back those shoppers will be tough for Penney, but Macy's stands to lose a lot if its revenue boost proves to be a temporary phenomenon.

In Macy's quarterly report, watch for signs of whether the company has to resort to more discounting of its own in order to fend off competitors. If it does, it could be a sign that Macy's faces longer-term concerns that could threaten its stock's run to record highs.

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Fool contributor Dan Caplinger and The Motley Fool have no position in any stocks mentioned. You can follow Dan on Twitter @DanCaplinger. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.