Dillard's Inc. (DDS) on Wednesday reported a narrower quarterly loss as it cut costs, but a drop in same-store sales caused the latest results to miss Wall Street's estimates by a wide margin.

The Little Rock, Ark.-based retailer said sales at stores open at least a year, or same-store sales, fell 3 percent in the second quarter ended July 31, making it tough to realize the full effect of cost controls on the bottom line.

Dillard's also said even though gross margins improved during the quarter, falling sales hurt results as it had also been implementing a higher level of markdowns to move inventory.

Its quarterly loss narrowed to $26 million, or 31 cents per share, from a loss of $50.4 million, or 60 cents per share, a year ago.

According to Reuters Estimates (search), analysts had expected, on average, a loss of 13 cents a share. Total sales also fell 3 percent to $1.67 billion from $1.72 billion a year earlier.

Commenting on its strategy plan, the company said it was focused on improving its merchandise mix in an effort to differentiate it from its peers.

The merchandising efforts, Dillard's said, include introducing new, younger-focused and more upscale national brands, as well as fine-tuning inventory by store location to meet the needs of the local shoppers.

Dillard's shares closed on Tuesday at $23.08 on the New York Stock Exchange (search).