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UPDATE 1-J.C. Penney quarterly loss smaller than expected, shares rise

(Adds third-quarter details, background, CEO comment, shares, compares with estimates)

Nov 15 (Reuters) - J.C. Penney Co Inc on Friday reported a smaller-than-expected quarterly loss, as the struggling retailer benefited from lower advertising expenses and an increase in margins, sending its shares up nearly 14%.

To appeal to today's modern shopper, the 117-year-old retailer has partnered with resale clothing company thredUP and is also testing a new store to attract customers with everything from a yoga studio, a videogame lounge and lifestyle workshops.

The efforts are a part of Chief Executive Officer Jill Soltau's strategy to turn around the business, after it faced years of falling sales in a changing retail landscape following Amazon.com Inc's entry.

"We are beginning to see results both in our numbers and how we operate as a business," Soltau said in a statement on Friday.

J.C. Penney's rivals, including Macy's and Nordstrom Inc, are also looking to bring in shoppers to new stores with cafes, donut shops, fine-dining restaurants and full bars with Instagrammable views.

Excluding one-time items, J.C. Penney reported a loss of 30 cents per share, smaller than the average analyst estimate of a loss of 55 cents.

The company said net loss narrowed to $93 million, or 29 cents per share, in the quarter ended Nov. 2, from $151 million, or 48 cents per share, a year earlier.

J.C. Penney's total revenue fell 8.5% to $2.5 billion in the third quarter.

The company also said it now expects its adjusted earnings before interest, tax, depreciation and amortization for the year to exceed $475 million, compared with its prior outlook of $440 million to $475 million. (Reporting by Nivedita Balu in Bengaluru and Melissa Fares in New York; Editing by Maju Samuel)