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UPDATE 3-Sears posts quarterly profit on Craftsman sale, cost cuts

* Reports first profit in 7 quarters

* Q1 costs plunge 30.6 pct to $4 bln

* Shares jump 17 pct in early trading (Adds details; updates shares)

May 25 (Reuters) - Sears Holdings Corp reported its first quarterly profit in nearly two years, as the retailer benefited from the sale of its Craftsman brand and a program to cut $1.25 billion in costs, amid doubts about its ability to continue as a going concern.

The company's shares were up 17 percent at $8.74 in early trading on Thursday.

However, sales continued the years-long decline, hurt by lower demand for groceries, apparel and home appliances at the retailer's Sears and Kmart stores.

Sears, once the largest U.S. retailer, has been struggling to adjust to the changing retail landscape and rising competition from Wal-Mart Stores Inc, Target Corp and Amazon.com Inc.

Sales at Sears' U.S. stores open more than a year fell 12.4 percent, while at Kmart it declined 11.2 percent in the first quarter ended April 29.

The company said in April it expected a net profit of between $185 million and $285 million for the first quarter, through a cost-cutting plan, which included store closures and cutting management jobs.

Selling and general expenses decreased about 16 percent to $1.27 billion in the quarter, leading to a near-third drop in total costs to $4 billion.

Sears said it cut up to $700 million in costs to date since announcing the plan in February.

The company in March sold its Craftsman tools brand to Stanley Black & Decker Inc for an upfront payment of $525 million.

Net income attributable to Sears' shareholders was $244 million, or $2.28 per share, compared with a loss of $471 million, or $4.41 per share, a year earlier.

Excluding such one-time items, the company reported a net loss of $2.15 per share.

Revenue fell 20.3 percent to $4.30 billion.

Sears, which has been closing stores and divesting businesses for years to cope with falling sales and a growing debt pile, warned in March about its ability to continue as a going concern.

Up to Wednesday's close, the stock had fallen 18 percent since the retailer raised going concern doubts. (Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Savio D'Souza, Arun Koyyur and Sriraj Kalluvila)