Sales at Sears and Kmart stores open for at least 12 months were down 3.9 percent during the second quarter, compared with a decline of 11.9 percent in the prior period. The 3.9 percent drop included a same-store sales decline of 3.7 percent at Kmart stores and a 4 percent decline at Sears stores. The company also said it saw positive comparable sales growth of 3 percent in July and 2.5 percent in August.

Sears, faced with mounting liabilities, continues to be in a race to sell off assets, cut costs and reduce debt, in a fight to keep the business afloat. Although same-store sales declines slowed during the latest period, they remain steep, illustrating the iconic retailer hasn't won shoppers back. Heading into the holiday season, Sears' options remain limited.

Sears Holdings on Thursday reported the smallest decline in quarterly same-store sales in more than three years, but its losses widened, as the embattled department store chain continues to trim its fleet of stores and aims to get back to profitability.

Its shares, which are heavily shorted, were up as much as 27 percent in after-hours trading on the news.

In a blog post, CEO Eddie Lampert reiterated Thursday he still believes Sears can accomplish its restructuring outside of bankruptcy, saying the alternative "could result in significant reductions in value." It's been more than a year since Sears warned it might not be able to continue "as a going concern."

"We have worked hard to make the best possible decisions for the Company given the options available to it and the variety of constraints it has faced," Lampert said. "We continue to believe that Sears can successfully evolve into a smaller but profitable company. ... This can only happen with the cooperation of our various stakeholders and with the monetization of further assets that can be reinvigorated independently and without the financial constraints of Sears Holdings."

Though total revenue still fell during the quarter by a double-digit percentage, Lampert continues to tout the retailer's progress as it makes moves such as opening small-format stores and selling some of its brands on Amazon. But key to the CEO's vision for Sears is getting a deal done with his hedge fund, ESL Investments.

The company has been evaluating a bid from ESL to buy parts of Sears Holdings. ESL most recently offered to buy the troubled retailer's Kenmore appliance division for $400 million. There's also an offer on the table for the fund to buy Sears' Home Improvement business for as much as $80 million in cash. A special committee has been reviewing the deal, and Sears said Thursday that it continues to do so. The retailer wouldn't comment further about any progress that's been made.

Lampert had said in May about getting this deal done that "speed and certainty here are critical" to meet Sears' "liquidity needs."

Sears has meanwhile been working with the Pension Benefit Guaranty Corporation, a federal government oversight organization that guarantees individuals' pensions, acting as a parachute if a company ever goes bankrupt. The retailer was forced to pay $407 million toward its pension plan earlier this year, which in turn allowed for the sale of about 140 Sears and Kmart stores.

Sears said Thursday it struck another deal with the group to release liens on certain real estate properties, which were previously serving as collateral. In return, Sears said it paid the PBGC $32 million. The retailer additionally said it's borrowed another $75 million and pledged some of those released properties, along with other stores, as collateral. Sears has a major debt payment coming next month.

Sears' pension liabilities have been reported to be a sticking point in its attempt to sell Kenmore. The PBGC is walking a delicate line, as it needs to get as much cash as it can from Sears without pushing the department store into bankruptcy.