UPDATE 1-Dillard's posts lower quarterly profit

(Adds sales, store closures)

ATLANTA, May 22 (Reuters) - Department store operator Dillard's Inc (DDS.N: Quote, Profile, Research, Stock Buzz) reported a 94 percent fall in first-quarter profit on Thursday as higher markdowns cut into margins, and its shares fell in after-hours trading.

The apparel and home furnishings retailer, which is closing underperforming stores and taking other moves to hold down expenses this year, pointed to the softer U.S. economy.

"The weak economic conditions, particularly in Florida, made it extremely difficult to achieve profitable sales levels," Chief Executive William Dillard said in a statement.

The company, which plans to shutter six stores in the current, second quarter, said it would continue to evaluate its store base for additional closures.

Earnings were $2.7 million, or 4 cents a share, for the quarter ended May 3, compared with $42.9 million, or 53 cents a share, a year earlier. The latest quarter included store closing charges of 1 cents a share.

Total sales fell 5 percent to $1.68 billion. Sales at outlets open at least a year, or same-store sales, fell 6 percent.

The mall-based retailer said gross margin fell 280 basis points in the quarter, hurt by higher markdowns.

Last month, Dillard's reached an agreement with a shareholder group that included hedge fund manager Barington Capital to avoid a proxy fight at its May annual meeting.