Nordstrom's old inventory problem continued to haunt it in the second quarter as profits fell 15 percent after the retailer cut prices to increase sales.

But Nordstrom executives waxed optimistic yesterday that past merchandising difficulties are turning around.

Sales in the second quarter, which ended July 31, climbed 6.1 percent to $1.55 billion from $1.46 billion a year ago, the company said.

Net income dropped to $38.7 million, or 29 cents a share, from $45.4 million, or 35 cents, a year earlier.

Nordstrom beat analysts' predictions of 28 cents a share by a penny.

In its own projections in May, Nordstrom said it expected to earn 28 to 31 cents a share.

Several apparel merchants cut prices during the quarter to boost clothing sales in the sagging economy.

Gap Inc., the largest U.S. clothing chain, reported yesterday that second-quarter profits dropped by about half, as it had also slashed prices to spur sales. Gap, which owns Old Navy and Banana Republic, said sales at stores open at least a year fell 9 percent.

The Nordstrom family took back the reins of their stores a year ago after an ill-fated campaign cost the company some of its most loyal shoppers.

In a conference call with analysts that was simultaneously Webcast for investors yesterday, President Blake Nordstrom said company leaders have spent most of the past year listening to customers and employees.

He pointed to improved sales events and better expense management as signs that the business is turning around.

"While we remain cautious about economic conditions, we believe that continued focus on customers, merchandise, and expenses is key to improving our financial results," Nordstrom said.

Sales in women's apparel have been steadily improving for seven months, but men's apparel sales continue to be weak.

Some analysts say Nordstrom is still a long way off from having a good handle on its inventory situation.

But Jennifer Black, an analyst for Wells Fargo Van Kasper, remains optimistic about the company.

"When you look at Nordstrom in this (economic) environment compared to other retailers, they are making significant improvement," she said.

"As a shopper, I like what I see in the stores," she said. "And I am seeing more mature women walking out of the store with shopping bags."

Shares in Nordstrom fell 14 cents to close at $21.40 yesterday on the New York Stock Exchange.

Cellular company VoiceStream Wireless of Bellevue said its loss for the quarter ended June 30 widened 73 percent, to $725 million from a loss of $420 million in the same quarter last year. In a filing with the Securities and Exchange Commission, VoiceStream said the larger loss was partly caused by increased depreciation and amortization costs associated with the company's sale to Deutsche Telekom on May 31. Revenue shot up 80 percent, to $817 million from $453 million.

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