What happened

Shares of Dillard's (DDS -2.58%) were shooting higher today after the department store chain turned in a second-quarter earnings report that was much better than expectations. The company actually reported a narrower loss than in the quarter a year ago, even with challenges from the COVID-19 pandemic.

As of 11:31 a.m. EDT, the stock was up 11.9%.

A blurry image of a department store shopping floor

Image source: Getty Images.

So what

Revenue at the Southern retailer fell 35.2% to $945.1 million, as a number of its stores were closed at the beginning of the quarter and retail traffic has generally been down because of the pandemic. That total missed revenue estimates of $1.01 billion.

However, investors were happy to overlook that figure as the company controlled its costs; gross margin actually rose 271 basis points due to decreased markdowns from a year ago as retail gross margin improved to 31.1%. Inventory was also down 20%, showing that the company effectively cut back on orders as stores closed in the first quarter. Lower payroll expenses also helped keep overhead costs down, and Dillard's finished the quarter with an operating loss of $33.4 million, an improvement from a $52.2 million loss in the year-ago quarter.

On a per-share basis, the company reported a net loss of $0.37 per share, while analysts had expected a loss of $4.82. 

CEO William Dillard II said, "During the quarter, we worked hard to control inventory and expenses. These measures allowed us to improve gross margin and substantially narrow the loss from the prior year second quarter. We will maintain this conservative financial approach as we move forward."

Now what

Dillard's did not offer guidance, but said sales were down 28% from a year ago as of Aug. 1, and that it had reopened all of its stores except one as of June 2, though they are operating at reduced hours.

Management also said the company is well positioned to weather the pandemic as it owns nearly all of its stores, has little debt, and has low rent obligations compared to its peers. Those attributes and its cost discipline should help the company as the uncertainty around the pandemic continues.