Big Lots Inc.'s (BIG) efforts to improve its image while adding stores in better locations may be making some headway, but the close-out retailer's fiscal second-quarter earnings beat was largely on better cost controls. Sales fell.

Second-quarter earnings rose 9.2%, with margins improving on lower payroll costs and advertising expenses. Big Lots also boosted the way it receives goods and delivers them to stores.

The better-than-expected results prompted Big Lots to raise its fiscal-year earnings estimate again, this time by 7 cents, to a range of $1.92 to $2.02 a share.

Shares were recently up 4.5% to $25.10 premarket.

Big Lots has been striving to enhance its image, working to improve the appearance of its stores while cutting deals for better locations as other retailers close. The company - which helps manufacturers clear their warehouses of discontinued, overproduced and otherwise unwanted goods - has been adding brands from manufacturers that previously shunned it because of its lower-end image.

Big Lots has been testing a move upscale, taking over a former Linens N' Things site in Ohio, where it is implementing edgier presentations, better lighting, wider aisles and other tweaks.

For the quarter ended Aug. 1, the company reported a profit of $28.4 million, or 34 cents a share, up from $26 million, or 32 cents a share, a year earlier. Wall Street was expecting 30 cents a share.

Net sales fell 1.7% to $1.09 billion, while comparable-store sales, or sales at stores open at least two years, declined 2.4%.

Gross margin rose to 40% from 39.3% amid higher prices and lower freight costs.

The company said earlier this month that consumable, hardline and seasonal goods were the strongest categories with at least flat sales. Home and furniture categories posted declines. Sales at Big Lots' western stores were strongest, while the Southeast, especially Florida, remained the most challenging.

For the fiscal third quarter, the company expects earnings of 14 cents to 19 cents, while analysts were looking for 16 cents. Big Lots said same-store sales may fall as much as 2%. Fourth-quarter earnings are slated to come in between 99 cents and $1.04, bracketing Street estimates. Same-store sales may rise slightly.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

(Tess Stynes contributed to this article.)