Everyone has been arguing about whether retail is going to have a tough holiday season this year, but does that apply to Too (NYSE:TOO), too? The company's merchandise, targeting "tweens" ages 7 to 14, seems to be bucking the recent slumping retail trends. On Wednesday, Too reported earnings that didn't disappoint, with a rather merry outlook for the upcoming holiday season.

Too -- a company long ago spun off from Limited (NYSE:LTD) -- reported third-quarter profits up 40% to $16 million, or $0.48 per share. Sales increased 16% to $203.5 million. Same-store sales at Limited Too increased 8%, with really impressive results coming from its discount concept Justice, where same-store sales jumped 19%.

It's good to know that Justice -- which I wrote about way back in March 2004, when the concept was in its infancy -- is helping Too improve its fortunes. Too also said that improving margins helped it achieve this impressive quarter, with little reliance on markdowns.

Going forward, Too said that the fourth quarter is looking good so far. The company increased its forecast to a range of $0.80 to $0.82 per share. That of course includes the important holiday season, in which tweens usually get what they want.

I've written about Too in the past, exploring the notion that its tween niche audience may be both underserved by other retailers and more insulated from the macroeconomic concerns that might impact other retailers.

On the other hand, there are plenty of cautions for investors. The high end of Too's target demographic includes teenagers, a market that many retailers try to lure. Among teen-targeting stores, Too's formidable rivals include Motley Fool Stock Advisor pick Gap (NYSE:GPS) and Abercrombie & Fitch (NYSE:ANF). Furthermore, Abercrombie is actively pursuing the 'tween business with its "abercrombie" concept. (Indeed, in Abercrombie's latest conference call, it said "abercrombie" same-store sales increased 62%, and admitted that it may not have recognized the tween market's opportunities in the past.) In addition, who's to say that tweens' taste in fashion isn't just as fickle as teens'?

While Too certainly appears to have very good prospects going forward, its healthy earnings announcement has driven the stock to a new 52-week high; it's currently trading at a forward P/E near 20. Investors eyeing Too should consider the price, and the risks to future growth, before plunking their money down here.

Further fashionable Foolishness:

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Alyce Lomax does not own shares of any of the companies mentioned.