TORONTO (Reuters) - Tim Hortons Inc (THI.TO: Quote), Canada's No. 1 restaurant chain, reported a 40 percent jump in third-quarter profit thanks to strong sales, but said operating conditions were still tough in North America.

The coffee shop operator earned C$103.6 million ($101.7 million), or 65 Canadian cents a share, up from C$73.8 million, or 42 Canadian cents a share, a year ago. Revenue rose more than 8 percent to C$726.9 million.

Analysts on average had been expecting earnings of 64 Canadian cents a share on C$726.4 million in revenue.

Operating conditions in North America continued to be challenging and the strength of our sales performance is a great testament to our strong price-value brand position, said Chief Executive Paul House in a release.

The company said results were also helped by a lower effective tax rate.

Sales at stores open at least 13 months, a key measure for retailers, rose 6.3 percent in the United States and 4.7 percent in Canada.

($1=$1.02 Canadian)

(Reporting by Allison Martell in Toronto and Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila)