UPDATE 2-Coldwater Creek Q2 profit beats estimates

(Adds conference call details, updates share movement)

Aug 27 (Reuters) - Women's apparel retailer Coldwater Creek Inc (CWTR.O) posted a better-than-expected quarterly profit, helped by reduced inventory levels and lower expenses, and reaffirmed its outlook for the third and fourth quarters.

But the company, which caters to middle- and upper-income women between the ages of 35 and 60, said it was "cautious" about the outlook for the remainder of fiscal 2008 given the challenging macro environment.

"Retail traffic is extraordinarily challenging, and we see no external stimulus to improve our customers' willingness to shop and spend in the short term," a company executive said in a conference call with analysts.

Shares of the Sandpoint, Idaho-based company fell 9 percent to $6.30 in trading after the bell. They had closed up 7 percent at $6.94 Wednesday on Nasdaq.

Coldwater Creek, which caters to mature women along with peers Chico's FAS Inc (CHS.N) and Talbots Inc (TLB.N), has been struggling due to sluggish retail trends and lackluster fashions that have translated into fewer sales at its stores.

For the second quarter ended Aug. 2, the company, which has stores in malls and mail order business, posted a profit of $3.1 million, or 3 cents a share. It earned $8.7 million, or 9 cents a share, in the year-ago period.

Net sales fell nearly 5 percent to $241.4 million due to decrease in retail store traffic and lower direct channel sales. Sales at stores open at least a year declined 13.7 percent.

Analysts on average expected earnings of 1 cent a share, before special items, on revenue of $243.2 million, according to Reuters Estimates.

The latest quarter included a non-cash charge of 1 cent a share related to the impairment of certain Coldwater Creek day spa locations.

Selling, general and administrative expenses fell about 10 percent to $88.5 million, partly due to reduced marketing spend. Total inventory decreased 17.3 percent to $127.1 million.

The company, which had 322 stores at the end of the quarter, said it plans to open 40 to 45 stores in fiscal 2008, but will not open additional day spa locations. (Reporting by Dilipp S. Nag in Bangalore; Editing by Deepak Kannan)