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J.C. Penney's back-to-the-future strategy pays off as sales rise

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking

By Siddharth Cavale

(Reuters) - J.C. Penney Co Inc's (JCP) return to "old school" retailing paid off for the second consecutive quarter, sending the company's shares up more than 25 percent in after-hours trading.

Penney, whose attempt to go up-market resulted in a 25 percent drop in sales in 2012, has revamped its household goods section and brought back many of the no-frills clothes that were ditched in its failed drive to attract more affluent shoppers.

Comparable store sales rose 6.2 percent in the first quarter ended May 3, helped by demand for household goods, men's and women's clothing, and jewelry, the company reported on Thursday.

It was the second consecutive quarter of same-store sales growth, after nine straight quarters of decline.

"We expect to carry this momentum into the second quarter...", said interim Chief Executive Mike Ullman, who returned to the helm last April after the ousting of Ron Johnson, the former Apple (AAPL) retail head who had led the retailer's failed re-imaging strategy.

Gross margins also continued to improve, to 33.1 percent from 30.8 percent in the same quarter of 2013, and Ullman said significant improvement was expected for the rest of the year.

"The return to old-school department store retailing principles ... with an infusion of flare in key departments is a recipe that could bring the company to the land of profits for the upcoming holiday season," Brian Sozzi, chief executive of Belus Capital Advisors, said in a research note.

The company's net loss of $352 million, or $1.15 per share, compared with a loss of $348 million, or $1.58 per share, a year earlier. Excluding items, the loss was $1.14 per share, according to calculations by Thomson Reuters I/B/E/S.

Analysts on average had expected a loss of $1.24 per share.

Total sales rose to $2.80 billion from $2.64 billion, beating the average estimate of $2.71 billion.

Penney maintained its full-year forecast of "mid-single-digits" percentage growth in comparable store sales.

Sales in the company's online business, which is also being revamped, increased 25.7 percent. No dollar figure was given.

Online sales peaked at $1.52 billion in 2011 and then fell by a third in 2012, largely due to a lack of investment.

Selling, general and administrative expenses fell by $69 million to $1.01 billion, exceeding the company's expectations.

Penney said it had increased its credit facility to $2.35 billion from $1.85 billion, and extended the maturity - a sign, Sozzi said, that lenders believe its turnaround is sustainable.

Penney's shares were trading at $10.03 after-hours. About 30 percent of the retailer's volatile stock is held by short-sellers betting that the shares will fall.

Earlier on Thursday, Wal-Mart Stores Inc (WMT.N) reported that its U.S. same-store sales were "relatively flat" in the quarter, blaming severe winter weather.

(Editing by Ted Kerr)