NEW YORK (CNN/Money) - As fourth-quarter retail results come trotting out next week, industry watchers are questioning whether any positive surprises will prove to be tantalizing mirages rather than telling signs of a recovery under way.

"Even though several companies have upped their earnings guidance last week, you have to be careful and not get too excited because these new estimates are still set against very low expectations across the board and against ridiculously low comparisons from the same period last year," said Zu Cowperthwaite, retail analyst with Evergreen Investments.

Among the companies that lifted their profit estimates for the fourth quarter were Wal-Mart, J.C. Penney and several of the hard-hit specialty apparel chains, including Ann Taylor and the Gap.

Because the fourth quarter accounts for more than half of the full-year sales for some merchants, and also marks the end of the fiscal year for most retailers, investors are straining to hear what retailers have to say about the business outlook in the new year.

But those forecasts may not be very optimistic, warned industry experts, given that the same factors that dulled last year's top-line and bottom-line growth -- a weak economy, a slowdown in consumer spending, job fears and war clouds -- still loom ominously over the retail landscape.

"The names to watch next week are the marquee ones like Wal-Mart and Target," said Cowperthwaite. "These two companies are typically the leading indicators for the group."

Wal-Mart, the world's biggest retailer, upped its full-year earnings target and said it expected to inch past its fourth-quarter estimate by a penny. But analysts said the revision has little to do with the retailer's domestic performance and stems largely from strength in its overseas operations.

"It's disconcerting that Wal-Mart hasn't been able to generate revenue growth, and that's a cause for concern, especially since the company is the touchstone for retailers," said Ken Perkins, retail analyst with earnings tracker First Call. "Target has also been struggling with sluggish sales, so it will be interesting to hear what they have to say."

Wal-Mart (WMT: Research, Estimates)'s January same-store-sales -- or sales at stores open at least a year -- rose 2.3 percent, missing its forecast, while at the same time it upped its earnings target for the year ended Jan. 31 to 2 cents better than analysts' estimates of $1.78 a share. The company said it expects to log 56 cents a share for the fourth quarter, a penny better than Wall Street estimates.

Wal-Mart reports for its fourth quarter on Tuesday.

Other discount and department store chains like J.C. Penney and Target followed Wal-Mart's example with disappointing January sales but indicated a better profit picture, with the exception of a quarterly warning from Sears Roebuck (S: Research, Estimates). Sears, the No. 2 general merchandise retailer, warned it expects to earn between 50 and 65 cents a share in its first quarter ending March 31, well below Wall Street estimates of an 87-cent profit.

Analysts who follow the company said Sears is bogged down with problems in its credit card unit as it struggles with the turnaround of its department stores.

As of Oct. 1, analysts estimated that retail earnings would grow 16.2 percent in the fourth quarter and 16.2 percent in the first quarter. However, after a dismal Christmas -- the weakest in a decade despite deep discounts -- and mostly flat sales in January, those estimates have since been slashed significantly to 9.9 percent and 7.9 percent, Perkins said.

Retail stocks within the S&P 500 rose more than 28 percent in both the second and third quarters of last year.

"Sales were better in October and November of last year but December wasn't good," said Perkins. "Retail sales fell week after week and dropped about 2 percent overall in December."

Added Perkins, "Retailers need to see top-line growth to generate profits. There's not much more price-slashing that can be done."

Evergreen Investment's Cowperthwaite thinks that the discounters and warehouse clubs will either meet or exceed expectations for the quarter.

But she added that any surprise to the upside will be because of better margins and not necessarily from revenue growth. "Target, for example, had soft sales all year round, but it could beat estimates because of better product sourcing."

Analysts said both Target and Wal-Mart have done a good job not only in lowering prices of merchandise and keeping inventories low, but also in buying their products at lower rates at the wholesale level.

"That has helped the companies to improve gross margins," said Bill Dreher, retail analyst with WR Hambrecht & Co.

Kohl's (KSS: Research, Estimates) is another name to watch in the retail lineup. Kohl's, which is slated to open 80 new stores this year, trimmed its fourth-quarter outlook last month to the lower end of its forecast after December sales fell short of its expectations.

Meanwhile, Target (TGT: Research, Estimates) said it was on track to meet its earnings target for the year, saying weak sales were offset by strength in gross margins and credit card operations. Analysts surveyed by First Call expect the retailer to earn $1.81 a share for the year and 75 cents a share for the fourth quarter ended Jan. 31.

However, the waters are more murky for the department store chains. The large shopping malls, which typically are built around department stores, are losing customers as shoppers increasingly favor the discount stores and warehouse club stores.

Federated Department Stores (FD: Research, Estimates), the parent of Macy's and Bloomingdale's warned of a 4 to 5 percent sales shortfall in February, while May Department Stores (MAY: Research, Estimates), the owner of Lord & Taylor and Filene's, saw sales fall 4.4 percent in January.

May Department stores Thursday posted fourth-quarter earnings of $1.28 a share, beating analysts estimates of $1.22 a share but much lower than the year-earlier period.

"All the department stores are at risk," said Marie Driscoll, retail analyst with Argus Research. "Mall traffic is not picking up and retail spending in malls is at its lowest in 10 years. Consumers are not buying the big-ticket items, and they're using the geopolitical tensions as a scapegoat."

That's a point that Robert Nardelli, CEO of Home Depot, the world's largest home improvement retailer, brought up earlier this week when he said that consumers were delaying their big purchase decisions until they figured out where the economy was going and what the implications of a war with Iraq might be.

But the standout group last quarter and possibly in the first quarter could be the niche specialty retailers like the teen apparel names Pacific Sunwear (PSUN: Research, Estimates) and Hot Topic (HOTT: Research, Estimates), and home electronics retailer and maker of specialty gadgets Sharper Image (SHRP: Research, Estimates) and Brookstone (BKST: Research, Estimates).

All four companies raised their earnings estimates for the fourth quarter.

"Apparel retailers may be turning around after a nasty period of negative same-store sales," said Driscoll. "Their inventories are cleaner and they really haven't indulged in excessive aggressive markdowns," she said.

Fourth-quarter earnings for the specialty apparel sector are expected to be up 27 percent from the previous quarter, and first-quarter earnings are expected to be up 18 percent, according to First Call.

"The specialty apparel retail names have low to high single-digit same-store sales estimates going into 2003, but early indications look like their spring merchandise is positioned to be well-received," said Evergreen Investments' Cowperthwaite.

Analysts point to the Gap (GPS: Research, Estimates) as the breakout star in the group, saying that the company has really turned the ship after two straight down years.

"The Gap is showing positive momentum going into 2003. The company returned to its basic apparel concept, which has always worked well with its core customers," said Cowperthwaite.

The Gap cited lower taxes and its recent streak of rising sales for boosting its fourth-quarter profit to between 23 and 29 cents a share, well above previous expectations of 16 cents a share.

But industry experts agree that it will take a string of such turnaround stories to really lift the retail gloom. And with war clouds gathering with pace and the economy still in need of crutches, a pullback in consumer spending could again short-circuit a retail pickup in 2003.