Despite a comparable-store decrease, Dillard’s Inc. still managed to increase retail gross margin in the first quarter.

“While the consumer environment remained challenging, we focused on profitable sales by offering interesting product combined with inventory control,” Dillard’s CEO William T. Dillard, II said in a statement. “As a result, our retail gross margin was 46.2 percent and inventory was down 2 percent. For the first time in our history, we reported cash and short-term investments exceeding $1 billion.”

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The department store retailer said the first quarter continued to see a “challenging sales environment.” Cosmetics was the strongest performing merchandise category, while men’s apparel and accessories was the weakest performing category.

It also said retail gross margin, excluding CDI, was 46.2 percent versus 45.6 percent a year ago. Gross margin increased moderately in home and furniture, and in women’s accessories and lingerie. Gross margin rose slightly in men’s apparel and accessories, women’s apparel, and juniors’ and children’s apparel, but was flat in shoes and cosmetics.

The retailer posted a 10.7 percent decline in net income for the three months ended May 4 to $180 million, or $11.09 a diluted share, from $201.5 million, or $11.85 a share, in the same year-ago quarter.

Net sales, which includes operations of CDI Contractors LLC, the firm’s construction business, fell 2.2 percent to $1.55 billion from $1.58 billion. Total retail sales, excluding CDI, slipped 1.5 percent to $1.49 billion from $1.52 billion a year ago. Comparable store sales fell 2 percent.

Wall Street was expecting adjusted diluted earnings per share of $9.63 on revenue of $1.55 billion.

Dillard’s said increased payroll expense helped to kick up its operating expenses (consolidated selling, general and administrative) to $426.7 million, or 27.5 percent of sales, from $406.4 million, or 25.7 percent of sales, a year ago.

During the quarter, the retailer opened a new location at The Empire Mall in Sioux Falls, South Dakota, marking it 30th state of operation. Dillard’s said it also will close a store at the Eastwood Mall Clearance Center in Niles, Ohio, this July. The retailer operates 274 Dillard’s stores across 30 states. The stores include 29 clearance centers. Dillard’s also operates its online site at dillards.com.