After reporting a $10 million loss in the seasonally weak second quarter three months ago, it has all been uphill for Children's Place (NASDAQ:PLCE), a leading specialty retailer of kids' apparel. At the time, I noted that increased traffic and higher conversion rates were timely improvements as the industry was gearing up for back-to-school shopping. For many, the season proved to be a disappointment, but Children's Place bucked the trend, announcing a stunning 21% improvement in August same-store sales.

The strong start to the third quarter was followed by an equally powerful finish, with the company posting an identical 21% rise (double analysts' estimates) in comps during October. Those monthly results were accompanied by even more good news -- third-quarter guidance was being increased to $0.64, a nickel ahead of current estimates. Children's Place has been stung by this before, when it lifted guidance back in April, only to later fall a penny short of analysts' revised expectations. This time, though, it finished a penny ahead by posting a $0.65 ($17.7 million) profit this morning, a 52% increase over the $0.43 earned a year ago.

The August and October same-store sales gains were bookends to an overall spectacular quarter where comps jumped 18%, which along with the addition of 19 new stores helped drive sales 26% higher to $280.5 million. The company has now reported double-digit increases in same-store sales in each of the past three quarters. The first two, however, followed prior-year weakness and were aided by easy comparisons, whereas today's results are even more impressive considering they are stacked up against last year's 14% advance.

It appears that much of the strength at Children's Place is company-specific rather than indicative of the industry. Rival Gymboree (NASDAQ:GYMB) recently announced a lackluster 2% rise in comps for the quarter and has slashed its full-year outlook. Gap (NYSE:GPS) reported a 1% decline in quarterly same-store sales (though its namesake chain eked out a 2% gain). Toys "R" Us (NYSE:TOY) is not scheduled to release third-quarter earnings until later this month but last reported a modest 1.8% rise in comps at its Babies "R" Us division.

Children's Place is gaining momentum and recently came to the conclusion that its targeted 40% growth rate for 2004 earnings was too low, lifting the full-year outlook by half to 60%. Even that forecast may prove to be conservative now that the company has been handed the reigns to Walt Disney's (NYSE:DIS) Disney Stores.

There is always the risk that the struggling retail outlets could drain cash from Children's Place, but there is a golden opportunity to cash in on the world's (according to Forbes anyway) most valuable character franchise. If the company can leverage Disney's popularity with its own retailing expertise, the acquisition (which has been estimated to contribute upwards of $500 million in additional revenues) could elevate Children's Place to a bigger playground.

Did Disney get a fair price for its stores, or was it too willing to unload them? Discuss in the Fool's Disney discussion board.

Fool contributor Nathan Slaughter owns none of the companies mentioned.