Will Department Stores Deliver in Q3?

NEW YORK (TheStreet) -- As department stores prepare to release their third-quarter earnings reports, the question looms: Will this finally be the quarter department stores defend their turf, or will they continue to suffer as bargain-hunting shoppers spurn them for discounters?

It's a loaded questions, with as many answers as there are department stores. So we'll start with Macy's(M Quote), which could be the biggest surprise of the third quarter, as the company's same-store sales came in ahead of plan and its inventory is in good shape, Citi analyst Deborah Weinswig wrote in a research note.

Preliminary same-store sales for the quarter fell 3.6%. Management originally predicted comparable sales in the second half of the year would decline between 5% and 6%. Analysts are looking for a loss of 7 cents a share on revenue of $5.2 billion when the company reports on Wednesday before the bell.

Citi, for one, has a favorable outlook for Macy's in the fourth quarter, and picks it as one of its top stocks for the holidays -- not to mention that this will be the first holiday the My Macy's localization initiative is in place nationwide.

On Friday, Macy's was upgraded by J.P. Morgan to overweight on improving sales trends.