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 , JC Penney Co Inc , Kohl's Corp and Nordstrom Inc 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.


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. 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.

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 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 plans to report earnings the following week.

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