* Q4 EPS $1.04 vs Street view 92 cts
* Q4 sales down 10 pct, same-store sales fall 13 pct
* Closed four stores in Q4; to open two in 2010
* Shares up 5 percent (Adds interest costs, updates share rise)
NEW YORK, March 1 - Dillard's Inc (DDS.N) reported a better-than-expected profit for the holiday quarter as higher margins, cost cuts and lower inventories helped the department store chain cope with sharply lower sales, sending its shares up 5 percent.
In a statement, Chairman and Chief Executive William Dillard said the company will maintain our disciplined approach to inventory management and cost-cutting, and the company noted its efforts to slash payroll and advertising expenses during the quarter.
Faced with falling sales during the economic slowdown, department stores such as Dillard's and rivals including Macy's Inc (M.N) and J.C. Penney Co Inc (JCP.N) drastically lowered inventory levels to avoid having to resort to steep markdowns to move merchandise.
Dillard's inventories were 5 percent lower at the end of the quarter than they were a year earlier, lifting its gross margins, or profit per item, 8.2 percentage points.
The Little Rock, Arkansas-based department store operator reported a net profit of $79.5 million, or $1.08 per share, for the fourth quarter that ended Jan. 30. It posted a loss of $149.3 million, or $2.03 a share, a year earlier.
Excluding one-time items, Dillard's reported earnings of $1.04 per share. On that basis, analysts' average forecast was 92 cents, according to Thomson Reuters I/B/E/S.
Dillard's said fourth-quarter interest expect fell $3.5 million, or 16 percent, due to a lower debt load.
Dillard's overall sales fell 10 percent to $1.83 billion, while merchandise sales at stores open at least a year, or same-store sales, fell 13 percent.
While most department store chains, upscale and mid-point, have begun to reverse same-store sales trends, Dillard's has lagged its rivals. It reported last month that January same-store sales fell 5 percent, making it one of the weakest performers among its peers that month.
Dillard's is set to report February sales on Thursday.
The company operated 297 Dillard's stores and 12 clearance centers at the end of the fourth quarter. It closed four stores during the quarter and said it plans to open two new stores, both in Texas, in 2010.
Its shares rose 84 cents to $17.71 in early trading. (Reporting by Phil Wahba. Editing by Robert MacMillan, Maureen Bavdek and John Wallace)