Saks Inc. (SKS) reported a much lower than expected first-quarter loss as it slashed expenses. The company said it will continue lowering overhead costs through measures like cutting staff salaries while better tailoring stores to local tastes and adding more lower-priced merchandise within the brands it offers.

"There's a dramatic cultural transformation happening at Saks," Chief Executive Stephen Sadove said Tuesday in a conference call with analysts.

The retailer, which has had limited success trying to retain its appeal as a luxury destination while also sharply reducing prices to broaden its reach, indicated it hoped to see less markdown pressure as inventories become better aligned with demand.

Staff was told on Tuesday morning that many salaried employees can expect 3% to 7% pay cuts starting in June. Saks said earlier this year it was cutting 1,100, or 9%, of its staff. During the conference call executives did not indicate if any more employee cuts are imminent.

The announced staff cuts and salary reductions are part of Saks' plan to cut overhead costs by twice the up-to-$30 million the company initially expected to shave this year. Saks' whittling also includes an 8.3% drop in capital spending, to $55 million.

The high-end retailer is going the route of department store chain Macy's Inc. (M) by developing local business plans for each of its full-line stores to guide them in acquiring, developing and retaining customers.

"The current way for most brands that we deliver is one size fits all, but the reality is it doesn't work," said Saks President Ronald Frasch said during the conference call. "Every store is taking ownership of expanding their market share by identifying potential customers and how to develop relationships with them. We're learning how to be much better buyers."

Investors liked the message and Saks shares recently rose 92 cents, or 22.3%, to $4.99.

Inventories at the end of the first quarter were down 7.3% from the prior year. Saks expects to bring inventories closely in line with demand, or sales, by the beginning of the third quarter, which would aid margins. It is also adding lower-priced items to brand lines it already carries as well as working with a number of vendors on exclusive product offerings.

Consumers have not completely abandoned full-priced shopping, but they are largely "looking for value," that includes quality and design in addition to price, Sadove said.

Saks expects to have positive cash flow by the end of the year, but the road ahead is not an easy one.

"Saks is certainly not out of the woods yet," said JPMorgan retail analyst Charles Grom in a research note. "But today's results show the company has taken aggressive steps to right-size its business and manage through the current difficult environment."

In the first quarter, Saks Fifth Avenue stores experienced continued weakness across all merchandise categories, geographies and channels of distribution. Net sales, which include 53 Saks Fifth Avenue stores and the company's 52 outlets, dropped 27% to $621.3 million. The New York City flagship was hit especially hard, as it was in the fourth quarter, as Wall Street employment and stock prices plunged.

The retailer's loss of $5.1 million, or 4 cents a share, compared with year-earlier income of $17.3 million, or 12 cents a share, was much better than the 26 cents a share loss that analysts polled by Thomson Reuters expected. Gross profit margin rose to 38.4% from 38%, helped by the shift of a spring clearance sale to the current quarter this year from the first quarter last year. That shift will boost second-quarter sales but hurt margins.

The company reaffirmed prior expectations related to sales, gross margin rate and inventories for the balance of the year, but is still declining to offer earnings guidance, saying economic conditions remain too dicey.

Saks' projection is for gross margin to decrease to the 27% to 29% range in the second quarter but to improve in the second half and end the year in the 35% to 37% range.

By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com