Dive Brief:

• Dillard's on Thursday reported that total third quarter retail sales (excluding its construction business) fell about 25% year over year to $994.6 million, with home and furniture significantly outperforming other categories and women's apparel sales "significantly below trend."

• Comparable store sales in the quarter fell about 24%. Inventory was down about 22% in the period, according to a company press release.

• The department store drove the quarter's selling, general and administrative expenses down by $99.9 million year over year, and gross margin improved 249 basis points. Net income rose to $31.9 million from $5.5 million in the prior-year third quarter.

Dive Insight:

Dillard's kept an iron grip on expenses and inventory in the third quarter, which helped avoid deep markdowns, expand margins and reach profits that were a pleasant surprise to analysts.

The retailer joined others in partaking of the current boom in furniture sales as consumers attend to their homes amid ongoing stay-at-home orders.

But the department store, which courted controversy early in the year when it kept some stores open during a lockdown meant to stymie the pandemic, saw traffic weaken later in the summer as peers experienced some recovery. Department stores like J.C. Penney, for example, saw better footfall improvements compared to Dillard's, where visits fell 42.7% in August and 41.7% in September, according to a report from traffic analytics firm Placer.ai.

The company said that sales in its Eastern stores "moderately outperformed the Central and Western regions," and Placer.ai picked up improvements in October. For the weeks of Oct. 5, 12 and 19, Dillard's visits were down an average of 31.6% year over year, the firm said.

In more bad news for enclosed malls, Dillard's didn't appear to follow through on a previously announced plan to open a store at Mesa Mall in Grand Junction, Colorado, during the third quarter, noting only that it will close one in Phoenix by the end of the fiscal year. J.P. Morgan analysts in emailed comments said this is likely to be a post-pandemic normal for the company, estimating five closures annually for the next two fiscal years.

Despite the surprise profit in the period, the company said it "expects to be in a net operating loss position for the fiscal year."

Longer term, Dillard's is stuck with many of the headwinds facing department stores generally, and that will continue to undermine sales, J.P. Morgan said. Still, those analysts see some advantage, too, as the competition's retail bankruptcies or store closures elevate its importance to vendors.

"Dillard's has worked to move its product, offering more upscale, focusing on the market opportunity between Macy's and Nordstrom, targeting a higher income demographic, and battling more on fashion than price," J.P. Morgan also said.