NEW YORK — Dillard’s fourth-quarter profits plunged 9.3 percent on a slight sales gain, but gross margins improved significantly as the retailer was awarded a hurricane-related, inventory insurance gain.

Dillard’s also reiterated plans to position its merchandise assortment in a more contemporary and upscale way to draw in a more fashion-conscious shopper.

Net income for the quarter ended Jan. 28 dropped to $98.5 million, or $1.24 a diluted share, from $108.6 million, or $1.30 a share, in the prior period on sales that rose 1.3 percent to $2.34 billion from $2.3 billion. Sales in the quarter were driven by a strong performance in footwear revenue, while children’s apparel and home goods “were significantly below trend,” the retailer said in a statement.

For the year, net income gained 3.3 percent to $121.5 million, or $1.49 a share, from $117.6 million, or $1.41 a share, in the previous period on sales that rose slightly to $7.56 billion from $7.53 billion.

In the most recent quarter, the gross margin rate increased 60 basis points, the retailer said, which was due to a “$28.2 million hurricane recovery gain related to insurance settlements received covering inventory losses incurred in the 2005 hurricane season.” Minus the gain, gross margins would have declined 60 basis points “as a result of lower levels of markups slightly offset by lower levels of markdowns compared” with the same period last year.

“While Dillard’s management is somewhat pleased with the sales improvement accomplished during the fall season of fiscal 2005, it strongly believes that opportunities exist for improvement in both sales and gross margin performance in the continued focused execution of its merchandise initiatives,” the retailer said.

The initiatives include making “notable changes” to the merchandise mix by going upscale as well as creating a “contemporary tone” to attract new customers.

This story first appeared in the March 6, 2006 issue of WWD. Subscribe Today.

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