DOW JONES NEWSWIRES 
 

Dillard's Inc.'s (DDS) fiscal second-quarter loss narrowed despite a drop in sales, as the department-store operator's efforts to manage inventory and cut costs paid off.

Retailers have been suffering from a steep drop in consumer spending and department stores have been among the worst hit retail segments, posting weak results over the past year. Dillard's and its peers have responded by planning conservative inventories to lessen markdowns and preserve margins as sales have shown no real sign of improvement.

For the period ended Aug. 1, Dillard's reported a loss of $26.7 million, or 36 cents a share, compared with a year-ago loss of $38.3 million, or 51 cents a share. The prior-year quarter's results included a net gain of 7 cents a share.

Earlier this month, the company reported total sales fell 15% as same-store sales tumbled 13%. Total merchandise sales for the full quarter fell 15%.

Dillard's, which operates in 29 states, last reported monthly same-store sales growth in July 2008.

Gross margin grew to 29.9% from 29.7%, because of efforts to manage inventory and minimize markdowns. Inventory was lowered by 18% in comparable stores, and down 19% companywide.

"We were pleased to realize continued significant benefits from our aggressive actions pertaining to inventory management, expense reduction and cash conservation," said Chief Executive William Dillard II.

Shares were down 4.5% to $9.99 in after-hours trading. The stock has more than doubled this year, although it is still under the 52-week high of $15.37 set in September.

-By John Kell and Alexandra Scaggs, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com;