How Staples Plans to Crush Its Competition

On Wednesday, Staples (SPLS +0.00%) 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.

Staples has been the giant in the office-products retail space for a long time, forcing its main competitors to combine forces in an attempt to present a bigger fight against the company. Yet Staples is still looking to defend its business against all the threats it faces from both bricks-and-mortar and online competition. 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.

Stats on Staples

Source: Yahoo! Finance.

How will Staples fare this quarter?
In recent months, analysts have marked down their views on Staples and its earnings, cutting estimates for the just-ended quarter by $0.04 per share and reducing their consensus for the current fiscal year by more than twice that amount. Yet the stock has done well, gaining almost 14% since mid-February.

The stock's strong performance hides some of the difficulties that Staples has suffered lately. In its last quarterly report back in March, the company posted revenue below expectations and guided its full-year 2013 results downward. Staples has faced many of the same headwinds that have hurt other big-box retailers, including weakness in Europe and high overhead.

But Staples is moving forward with several initiatives designed to make it more competitive. The company has been closing stores both domestically and internationally, following the same trend as electronics-retailer Best Buy (BBY +2.48%) in gravitating toward lower-cost smaller locations that have more of a focus on high-margin products like mobile devices and services. A new deal with Apple to stock products and accessories in its U.S. stores could bring a big increase in traffic for the retailer. More recently, Staples' partnership with 3D Systems (DDD 2.88%) to sell its consumer-focused Cube 3-D printer line could draw curious buyers into stores as well.

Moreover, Staples has a huge opportunity in the expected merger between rivals OfficeMax (NYSE: OMX) and Office Depot (ODP +0.00%). The two smaller retailers believe that by merging, they'll be able to pose a more efficient and effective competitive threat to Staples. But in the process, investors expect that OfficeMax and Office Depot will end up closing stores, giving Staples room to expand with its smaller-store model and take advantage of its new strategic alliances.

In Staples' quarterly report, pay close attention to how the company is doing with its online revenue. As the threat on the Internet front becomes more significant, Staples will need to keep moving forward with its strong online presence in order to keep competitors at bay there. Nevertheless, Staples has an exciting future ahead of it, especially if it can make the most of the opportunities it has.

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