Saks Inc posted a smaller-than-expected quarterly loss on Tuesday as the upscale retailer worked to cut inventory and costs to offset a steep drop in sales, sending its shares up more than 10 percent.

Saks also raised its target for cost cuts, as it continues to expect a sales decline for the remainder of the year.

Saks' net loss was $5.1 million, or 4 cents per share, in the fiscal first quarter that ended May 2, compared with a profit of $17.3 million or 12 cents per share, a year earlier.

Excluding some charges, its loss of 3 cents per share was much smaller than the loss of 26 cents per share expected on average, according to Reuters Estimates.

Sales fell 26.9 percent to $621.3 million.

Saks has been one of the worst hit retailers in the recession. It has faced months of sales declines and had to resort to deep discounts in the holiday quarter to attract shoppers to its stores.

Saks shares were up 10.3 percent to $4.50 in premarket trade from Monday's closing price of $4.08.

(Reporting by Aarthi Sivaraman, editing by Dave Zimmerman)