PREVIEW-U.S. dept stores may struggle to satisfy investors

* Macy’s, Penney, Nordstrom, Kohl’s to show better results

* Sell-off could worsen if outlook disappoints-analyst

* Battle on for market share-analysts, executives

By Phil Wahba

NEW YORK, May 9 (BestGrowthStock) – Top U.S. department stores are
expected to show this week that the strong momentum from last
year’s holiday season has carried into spring, but investors
are already looking toward summer and autumn.

Macy’s Inc (M.N: ), JC Penney Co Inc (JCP.N: ), Kohl’s Corp
(KSS.N: ) and Nordstrom Inc (JWN.N: ) all plan to report
first-quarter earnings just weeks after some department store
stocks touched yearly highs following a sustained rally.

But a sell-off has begun and analysts say any sign of
stalling sales growth could trigger a further drop.

“Investors want to see that the sales momentum will
continue. We could be setting ourselves up here for a bit of a
disappointment,” Thomas Weisel analyst Liz Dunn said.

As the industry waits for shoppers to come back in full
force, retailers have boosted their profits by lowering
inventories, which reduce the need for deep discounts. But
analysts say that strategy will not work forever.

“You can sustain reasonably healthy gross margins through
the year, but the comparisons will get more difficult, so
you’re going need a higher level of sales to continue to drive
earnings growth,” said Manning & Napier analyst Walter Stackow,
whose fund owns shares of Nordstrom and Kohl’s.

Before the economic downturn, department stores grappled
with a staid image and increased competition from specialty
retailers. When the recession slammed the brakes on consumer
spending in 2008, they suffered some of steepest sales declines
of all. That has made their year-over-year comparisons easier.

Department stores said sales at stores open at least a year
rose 5.3 percent in March and April, besting retailers as a
whole, which saw a gain of 4.8 percent, according to Thomson
Reuters.

BATTLE FOR SHARE

Macy’s, JC Penney and Kohl’s all raised their quarterly
profit outlooks after reporting strong sales for April and the
first quarter, a few bright spots in a rocky landscape.
[ID:nN05176011] Their shares have fallen nonetheless.

Even shares of Nordstrom — one of the few retailers to
beat Wall Street estimates with a 7.5 percent jump in April
same-store sales — are down 13.3 percent from a 52-week high
of $46.21 hit on April 26. Last week’s overall market sell-off
also hit department stores. [ID:nN07263923]

The S&P Retail Index (.RLX: ) is off 11 percent since it also
hit a yearly high on April 26.

“The No. 1 driver” for investors to get back on board with
department store stocks will be sales, Dunn said.

Macy’s Chief Executive Terry Lundgren and other executives
have said they were not relying on consumer spending bouncing
back to to lift sales throughout the year.

“I’m not counting on everyone winning,” Lundgren said last
month at Macy’s investor day. “It’s about taking market share
from others.”

Macy’s is expected to roughly break even in its first
quarter after a year-earlier loss, while Penney’s is expected
to report a near-tripling in its profit despite only a slight
jump in sales, according to Thomson Reuters I/B/E/S.

Meantime, Wall Street expects Nordstrom, which has
succeeded in taking market share from both higher-end and
lower-end rivals, to report a 68 percent profit jump on a
nearly 15 percent sales increase. Kohl’s profit should go up 28
percent on the strength of 9.3 percent sales growth.

Saks Inc (SKS.N: ) plans to report earnings the following
week.

Stock Market Research

(Reporting by Phil Wahba; editing by Andre Grenon and Maureen
Bavdek)

PREVIEW-U.S. dept stores may struggle to satisfy investors