Source: Wikimedia Commons

Investors who acquired shares of Staples (NASDAQ:SPLS) prior to the company's earnings release were greeted with a nasty surprise on March 6. After the office-supply retailer reported revenue and earnings results that fell short of analyst expectations, shares plummeted 15%, hitting a new 52-week low of $11.16 on their way down. Now that shares are trading at such a steep discount to their 52-week high of $17.30, is the company an attractive investment, or should investors expect more downside?

Staples handed investors a nasty earnings surprise!
For the quarter, analysts expected Staples to report revenue of $5.97 billion, representing a 9% decline compared to the nearly $6.6 billion the company reported in the year-ago quarter. Unfortunately for the company's shareholders, sales came in at $5.87 billion, nearly 2% lower than forecast.

In its release, management claimed that the company's revenue was impaired by about 1% during the quarter due to 109 store closings spread out between North America and Europe. The largest drag on revenue, however, was the 7% decline the business experienced in comparable-store sales in its North American operations. 6% of this decline was attributed to decreased traffic, while the remaining 1% was chalked up to smaller order sizes.

All of this contributed to Staples reporting profits that fell far short of what Mr. Market anticipated. For the quarter, the business reported earnings per share of $0.33 (both generally accepted accounting principles and non-GAAP). This represents an improvement over the $0.14 in GAAP earnings the business reported in the year-ago quarter but fell shy of the $0.39 that analysts hoped to see.

To make matters worse, the company announced plans to close up to 225 locations by 2015. Between North America and Europe, Staples operated 2,128 stores by the end of its fourth quarter. This implies that the company's initiative will decrease store count by 11% over the next year.

Source: Staples

But is there any better alternative?
Right now, the situation at Staples looks bad. But for the Foolish investor who wants a piece of office-supply companies, there aren't many alternatives. Despite the fact that revenue for the year fell 5% (more than 3% after accounting for the company's extra week of operations during 2012), its longer-term track record hasn't been quite so negative. Between 2009 and 2012, for instance, the company grew its top line by 4% from $24.3 billion to $24.4 billion.

Looking at profitability, however, the picture at Staples looks a bit worse. During the past four years, the company's net income declined from $738.7 million to -$210.7 million. Fortunately, with cost reductions, primarily in the form of lower restructuring charges, decreased interest expenses, and no impairments compared to last year, net income came in at $620.1 million in 2013.

This track record is far from great, but the company's situation sure beats rivals like Office Depot (NASDAQ:ODP) and Best Buy (NYSE:BBY). Between 2010 and 2013, Office Depot saw its revenue fall 12% from $12.1 billion to $10.7 billion. On top of being hit by store closings, the business saw its revenue impaired by lower comparable-store sales.

In spite of these troubles, Office Depot was able to improve its operations. Over this four-year time frame, the company saw its net loss of $596.5 million narrow significantly to a loss of only $77 million.

Another hard-hit retailer over this time frame was Best Buy. Over the past four years, the company saw its revenue fall an even worse 15% from $49.7 billion to $42.4 billion. Recently, the business has drawn pain from both its domestic and international operations, with both areas experiencing adverse sales trends.

In response to this revenue decline, Best Buy's net income fell from $1.3 billion to -$249 million. Fortunately, the business' bottom line has started to show signs of improvement, but there is no guarantee that the business will be able to turn a profit moving forward.

Foolish takeaway
Based on the data provided by Staples, it looks as though the company is facing some extreme difficulties. In an age when retail is shifting away from brick-and-mortar establishments and toward online sales through companies like, Groupon, and eBay, retailers are left struggling to maintain profitability.

As time progresses, it will be interesting to see how Staples either evolves or devolves. Fortunately, the company does have a significant online presence and, coupled with a plan to reduce costs by $500 million per year, the chance to recover.

For those investors who believe that management has what it takes to turn the business around, Staples could be a good investment, especially when compared to its peer group. However, if the company is unable to improve operations as a result of its initiatives, the downside could be very severe.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.