It's all good at the GameStop (NYSE:GME).
The country's leading video game retailer scored big over the holidays as folks loaded up on next-generation consoles and gaming software. The company is posting a stellar 24% gain in comps through the nine-week holiday period, and it's now looking to earn between $1.58 a share and $1.60 per share for the quarter. Back in November, GameStop was guiding investors to expect earnings between $1.53 a share and $1.59 a share on a 14% to 18% improvement in comps.
The healthy store-level gains were expected. The company took advantage of the voracious demand for the limited supply of Sony (NYSE:SNE) PS3 and Nintendo Wii systems by, in some cases, bundling them with higher-margin software, peripheral, and extended-warranty offerings. The company did the same thing with Microsoft's (NASDAQ:MSFT) Xbox 360 last year, but this time it had two new systems to market, along with an ample supply of pricey 360s on hand to satisfy frustrated parents that weren't able to secure a Wii or a PS3.
Other dynamics worked in GameStop's favor. The Wii came packaged with the addictive Wii Sports title, which found diehard gamers scrambling to purchase additional controllers to field four-player tennis matches. On the handheld side, Nintendo DS Lite systems sold briskly, and the Sony PSP continued to move units.
A company like GameStop can feast on these next-generation transitions immediately, unlike the video game companies, which usually peak a few years into the migration process. Software publishers rely on larger installed bases, while businesses like GameStop can cash in on the instant boost in sales for new systems, while raking it in with the higher-margin business of buying and selling used games, systems, and accessories.
Does that make GameStop the all-weather play in the video game niche? Perhaps, though the console makers are now moving a great deal of product through online marketplaces that cut out the retail-distributing middlemen. GameStop will also be challenged to keep up the pace next holiday season. The Xbox 360 drove holiday comps up 9% a year earlier, which means that comps have surged an amazing 35% over the course of the past two telltale holiday shopping seasons.
The bar is set as high as the stakes. Then again, if GameStop shareholders are diehard gamers at heart, that's probably just how they like it.
For more on the gaming revolution, check out:
GameStop has been recommended by David Gardner for his Stock Advisor subscribers. Microsoft is an Inside Value recommendation.
Longtime Fool contributor Rick Munarriz has been an avid video game buff since the early days of the Atari 2600. He and his family have already staged a few Wii-lympics in their living room. He does not own shares in any of the companies in this story. Rick 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.
