UPDATE 3-Gap Q3 net profit rises, stands by 2008 view

(Adds CEO, CFO and analyst quotes, details on other retailers)

* Q3 EPS 35 cents vs Street 34 cents

* Q3 net profit up 3 percent

* Q3 revenue $3.56 billion vs Street $3.55 billion

* 2008 outlook reaffirmed

* Shares unchanged after closing down 6 percent at $9.51

By Alexandria Sage

SAN FRANCISCO, Nov 20 (Reuters) - Gap Inc (GPS.N) posted higher quarterly net profit on Thursday, topping Wall Street expectations, helped by lower inventory and cost cutting that boosted margins and offset a decline in sales.

The global apparel retailer, which operates the Gap, Old Navy and Banana Republic chains as well as online shoe seller Pipeline, also stood by its full-year earnings forecast.

Gap shares were unchanged after-hours. They had closed down nearly 6 percent at $9.51 in a broad stock market sell-off.

"There's no question the fourth quarter is going to be challenging," Chief Executive Glenn Murphy said on a conference call, adding that shoppers were beginning to notice product improvements at Gap and Old Navy.

Susquehanna Financial analyst Thomas Filandro called Gap's third-quarter results "impressive, given the environment and their same-store sales results."

"They've done an amazing job of navigating the environment and preserving capital, focusing on growing those gross margins, keeping the balance of a healthy business as they right-size the brands," Filandro said.

For the third quarter ended Nov. 1, net income rose 3 percent to $246 million, or 35 cents per share, from $238 million, or 30 cents per share, a year earlier.

Sales fell nearly 8 percent to $3.56 billion from $3.85 billion, the San Francisco-based company said.

Analysts, on average, had expected earnings of 34 cents on sales of $3.55 billion, according to Reuters Estimates. The company predicted earnings of 33 cents to 35 cents per share.