Meet the Real Guitar Hero

Guitar Center (Nasdaq: GTRC  ) has a totally rockin' ax to grind. The music gear retailer is one of Tuesday's big winners -- trading 7% higher this afternoon -- after blowing past analyst estimates.

Net sales rose 13.5% to $534.5 million for the quarter ended in March. Earnings increased to $0.57 a share after a charges-laden $0.55-per-share showing a year earlier. It may not seem like much of a shredding session, but Wall Street was looking for profits to drop to $0.49 per share for the quarter.

It was the kind of quarter you would like to see more often out of an inconsistent company that seems to have more highs and lows than a busy tremolo bar. All three of the company's subsidiaries (its namesake retail stores, its direct response business, and its music and arts division, which  specializes in traditional band instrument sales and rentals) came through with double-digit top-line percentage gains.

Guitar Center is now expecting to earn $2.52 to $2.71 a share this year, comfortably ahead of the $2.51 that analysts have been projecting.

Don't blame Wall Street for that. Guitar Center did its part to scare the market three months ago. The company talked down its own near-term prospects, weighed down by the challenges of relocating its Musician's Friend warehouse, upgrading its computer systems, and spending to fix its recent Woodwind & Brasswind acquisition.

The company's full-year bottom-line guidance at the time was $2.41 to $2.65 a share. These are three good months, indeed.

So how can a company that's hooking up garage bands and marching bands with gear thrive while CD sales tumble? Maybe the success of Guitar Hero and Guitar Hero II is helping out. The popular video game, created by Viacom's (NYSE: VIA  ) Harmonix and published by Activision (Nasdaq: ATVI  ) , is an electric guitar simulation where players strum along to hit songs.

The game is so revolutionary that Electronic Arts (Nasdaq: ERTS  ) is now partnering with Harmonix to roll out Rock Band. That game will allow up to four players -- in the same room, or online -- to work as a band in perfecting their chops on guitar, bass, drums, and vocals.

It's not just the video games inspiring couch potatoes into picking up music lessons. CD sales may be off, but getting prerecorded music out there has never been easier. From simple Apple (Nasdaq: AAPL  ) recording software to free distribution through sites like News Corp.'s (Nasdaq: NWS  ) MySpace and CNET's (Nasdaq: CNET  ) MP3.com, the opportunities are endless, and Guitar Center is there to sell the gear to make it happen.

Shakespeare may have written that "all the world's a stage." Rush may have paraphrased it. However, it's 2007, and the reality is that all the stage's a world.

Activision and Electronic Arts are Motley Fool Stock Advisor newsletter selections. CNET is a Rule Breakers recommendation. Jam along to either stock research service with a 30-day free trial subscription.

Longtime Fool contributor Rick Munarriz really did play in a band that was signed to Columbia Records. His band sold a few records before he traded in one keyboard for another. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it rocks harder than Freebird.