NEW YORK (AP) - Sears Holdings Corp. reported a 62 percent drop in second-quarter profit as the retailer continues to struggle to attract customers to its stores despite a high-stakes restructuring. The company also delivered a downbeat outlook predicting that its sales and gross profit margins will continue to be pressured amid a challenging economic environment.

The Hoffman Estates, Illinois-based retailer, which operates Kmart and Sears, Roebuck and Co. stores, said Thursday that it earned $65 million, or 50 cents per share, in the three-month period ended August 2. That compares with $173 million, or $1.15 per share, in the year-ago period.

"Our second-quarter results reflect the continued effects of a slowing economy,which contributed to the earnings declines we have experienced since the third quarter of 2007," said in terim president and CEO W Bruce Johnson in a statement. He added that while it was a difficult quarter, he said that the company was successful in reducing domestic inventory levels by $500 million, which he believes should lead to lower markdowns and help improve gross margin rates in the second half of the year.

The company said yesterday that it intends to further reduce domestic merchandise inventories to better align current levels with expected sales. The moves to reduce inventory mirror what other retailers are doing.

But slashing inventory may not be enough to turn around the company's fortunes. With a large exposure to big ticket, home related merchandise, Sears faces huge challenges as shoppers, squeezed by the rising costs of staples such as gas and food, have cut back on nonessentials. Same-store sales fell across most categories at the company's US Kmart and Sears stores, but continued to be offset by gains in sales of consumer electronics, the company said.

Same-store sales declined 6.7 percent at Sears, while at Kmart, same-store sales dropped 5.6 percent in the quarter.

Especially hard hit were categories such as home appliances and tools that have been hurt by the housing slump.

Sears added that for the full year, earnings before interest, taxes, depreciation and amortisation, or EBITDA, will be comparable to, but no longer exceed, last year's results.

The current EBITDA estimates reflect same-store sales that are expected to be anywhere from flat to down modestly for the rest of the year, the company said.