* September same-store sales rose 9.9 percent

* Q3 merchandise margins improving

* Shares rise 12 percent in extended trading (Recasts first paragraph; adds executive comment, background, byline; updates share activity)

By Lisa Baertlein

LOS ANGELES, Oct 12 (Reuters) - Home furnishings retailer Pier 1 Imports Inc (PIR.N: Quote, Profile, Research) said sales at established stores rose 9.9 percent in September and said merchandise margins continue to improve, sending its shares up 12 percent.

Pier 1 stock -- which fell to 10 cents a share in March -- rose to $4.94 in extended trade from its close of $4.41 on the New York Stock Exchange.

To put that seven-month share gain in perspective, a person who invested $10,000 in Pier 1 when shares were at 10 cents would now have an investment worth nearly half a million dollars.

Fort Worth, Texas-based Pier 1, which sells goods ranging from teak patio furniture and Papasan chairs to dinner plates and wine glasses, competes with retailers such as Crate and Barrel, Williams-Sonoma Inc's (WSM.N: Quote, Profile, Research) Pottery Barn, Cost Plus Inc (CPWM.O: Quote, Profile, Research) and Bed Bath & Beyond Inc (BBBY.O: Quote, Profile, Research).

Such retailers have seen sales slump with the housing-led recession.