(Reuters) - Sears Holdings Corp SHLD.O reported its first quarterly profit in nearly two years, as the retailer slashed costs by nearly a third and benefited from the sale of its Craftsman brand, sending its shares surging as much as 32.5 percent.

The company’s shares, which are heavily shorted, posted their biggest intraday percentage gain in more than three months. The shares had fallen 18 percent since Sears raised going concern doubts in March.

Quarterly sales, however, continued their years-long decline, while the company’s cash balance fell to $264 million as of April 29 from $286 million at Jan. 28.

Sears, once the largest U.S. retailer, has been struggling to turn around its business for years amid intensifying competition from Wal-Mart Stores Inc WMT.N and Amazon.com Inc AMZN.O.

The worsening retail environment hasn't helped either, forcing Sears and others including Macy's Inc M.N to close stores and cut costs.

Sears, which sold its Craftsman tools brand to Stanley Black & Decker SWK.N in March, said it had cut up to $700 million in costs to date since February as part of a program to reduce costs by $1.25 billion.

Total costs in the first quarter fell to $4 billion.

SHORT SQUEEZE

Sears CEO Eddie Lampert said on Thursday the results had “clearly demonstrated” the company’s commitment to return to solid financial footing.

A Sears department store is pictured in La Jolla, California, U.S., March 22, 2017. REUTERS/Mike Blake

However, at least two people, including a hedge fund manager, said the stock’s surge was more indicative of a short squeeze than a turnaround in the business.

“The stock movement does not indicate anything related to investment on the basis of fundamentals,” David Tawil, president of hedge fund Maglan Capital, which invests in distressed companies, told Reuters. The fund said it does not have a stake in Sears.

Mark Cohen, former CEO of Sears Canada, backed the view.

“There’s no turnaround. Anybody who suggests that that’s the case... is suffering from a loss of reality,” said Cohen, currently director of retail studies at Columbia Business School.

As of May 15, short interest stood at 13.5 percent of the company’s outstanding shares, according to Reuters data.

Sears, which has not posted an annual profit in six years, has also struggled with a big debt pile.

Total liabilities at the end of the quarter was $12.6 billion, down from $13.19 billion at the end of the fourth quarter.

Sales at Sears’ U.S. stores open more than a year fell 12.4 percent, while at Kmart they declined 11.2 percent. Total revenue fell by a fifth to $4.30 billion.

Net income attributable to Sears’ shareholders was $244 million, or $2.28 per share, within the range of the company’s forecast in April.

Excluding restructuring items, the company reported a net loss of $2.15 per share.

The company’s shares were up 11 percent at $8.31 in late-afternoon trading.