* Q3 profit almost doubles to $24.1 mln

* Q3 adj EPS 84 cents in line with estimates

* Sees "very challenging" holiday season

* Shares rise 12 pct (Recasts; adds details from conference call, updates share movement)

Nov 20 (Reuters) - Children's Place Retail Stores Inc's quarterly profit almost doubled, driven by higher sales and improved gross margins, sending its shares up as much as 12 percent.

www.childrensplace.com

For the third quarter ended Nov. 1, the apparel retailer posted net income of $24.1 million, or 81 cents a share. It earned $12.3 million, or 42 cents a share, a year earlier.

However, Children's Place, like several other apparel retailers including Gymboree Corp , sees a challenging holiday season as the ongoing downturn in the U.S. economy forces more and more buyers to stop short of spending on non-essentials.

"We expect this holiday season to be a very challenging one as the macroeconomic environment remains weak and is impacting consumers' purchasing power," Chuck Crovitz, interim chief executive, said in a statement.

For the third quarter, adjusted earnings from continuing operations were 84 cents a share, in line with the analysts' average estimate, according to Reuters Estimates.

Net sales at the company, which operates about 920 Children's Place stores, rose about 5 percent to $450.6 million.

Same-store sales, a key gauge of retail performance that measures sales at stores open at least a year, were up 2 percent.

Gross margin rose to 43.6 percent from 40 percent. Selling, general and administrative expenses were down 3 percent during the quarter.

Shares of the Secaucus, New Jersey-based company rose to a high of $19.97, but pared some gains and were up 6 percent at $18.60 in midday trade on Nasdaq. The stock has gained 34 percent since hitting a 52-week low of $14.92 in January.

TOUGH HOLIDAY SEASON

"This year is far from over and we're facing a very sobering macroeconomic environment this holiday season, one of the worst we have ever seen," Crovitz said during a conference call with analysts.

The company, whose rivals include Gymboree, American Eagle Outfitters and Aeropostale , said it expects competition to be intense as many retailers use deep promotions to entice customers into their stores to move excess inventory.

Children's Place said it remains "conscious and conservative" in its approach to both the fourth quarter and 2009 as significant volatility in both shopping traffic and sales creates an uncertainty going forward.

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