SEATTLE, Aug 17 (Reuters) - Dillard's Inc (DDS.N) posted a smaller-than-expected quarterly loss on Monday 17 August as the department store operator cut costs and inventory to offset lower sales.

Rock and roll ruffles at Dillard's - Photo: www.dillards.com

The company's second-quarter net loss was $26.7 million, or 36 cents per share, compared with a loss of $38.3 million, or 51 cents per share, a year earlier.

Analysts, on average, expected a loss of 56 cents a share, according to Reuters Estimates.

Sales fell about 11.2 percent to $1.43 billion. Merchandise sales in same stores declined 13 percent.

Dillard's closed one store in the quarter and has identified five other locations to close in 2009. Dillard's said it would close underperforming stores, where appropriate.

Department stores have suffered in the recession as shoppers prefer to shop at discount stores and curtail spending on discretionary items such as clothes and home goods.

Last week, J.C. Penney Co Inc (JCP.N) posted a smaller-than-expected quarterly loss, and forecast a same-store sales drop for the year.

Dillard's said advertising, selling, administrative and general expenses fell $82.6 million in the quarter, helped by store closures and savings in areas like payroll, advertising, and supplies. It expects such cost cuts and store closures to help operating costs decline more than $200 million for the year.

Dillard's said it reduced inventory by 19 percent during the quarter. The company said it would take a "realistic" approach to stocking items, such as timing the receipt of merchandise to anticipated customer demand.

Dillard's shares were unchanged from its $9.99 close on the New York Stock Exchange.

(Reporting by Aarthi Sivaraman. Editing by Robert MacMillan and Carol Bishopric)