Dillard’s Inc. trimmed expenses in the first quarter, but not enough to make up for higher markdowns, which propelled a 93.7 percent nosedive in profits.

Net income fell to $2.7 million, or 4 cents a diluted share, from $42.9 million, or 53 cents, a year earlier. Revenues for the three months ended May 3 slid 4.8 percent to $1.71 billion from $1.8 billion.

Same-store sales declined 6 percent at the department store chain.

“Our first-quarter performance was certainly disappointing,” chief executive officer William Dillard 2nd said. “The weak economic conditions, particularly in Florida, made it extremely difficult to achieve profitable sales levels. The detrimental effect on our gross margin performance was dramatic as we worked to control inventory position.”

Dillard’s, along with stores across the industry, have been compelled to rely on promotions to move goods because of soaring food and gas prices, the housing market implosion and tight credit.

“We will continue to run our business conservatively to navigate the near-term economic uncertainty,” Dillard said

The Little Rock, Ark.-based company, which had 324 stores at the end of the quarter, is in the midst of a program to close underperforming stores and reduce capital expenditures and expenses as it tweaks the mix of goods to beef up its appeal to the aspirational, upscale and contemporary consumer. Dillard said at the annual shareholder meeting last week that the chain entered too many markets it shouldn’t have gone into.

Dillard’s cut advertising, selling, general and administrative expenses by $17.8 million in the first quarter, as savings in payroll, advertising, insurance and other areas were offset somewhat by increased utility prices. The retailer said it could rack up expense savings of about $50 million this year.

During the quarter, Dillard’s closed a Louisville, Ky., distribution center and a clearance center in Jonesboro, Ark. It also opened six new stores and revealed plans to close another six during the second quarter.

The regional chain has come under increasing pressure from larger national competitors such as Macy’s, and also has been pressured by investors to boost profits.

Last month, Dillard’s and two investors, Barington Capital Group and Clinton Group Inc., agreed to elect four new nominees to the firm’s board, avoiding a proxy fight.

This story first appeared in the May 23, 2008 issue of WWD. Subscribe Today.

The two funds had pressed Dillard’s for information on the company and its executives, including their compensation and perks such as the use of private planes.

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