Video game retailer and Motley Fool Stock Advisor recommendation GameStop (NYSE:GME) followed up its best first quarter ever with its best second quarter ever, which in my estimation makes the first half of fiscal 2007 its best ever. Trends are coming in so strong in the industry that management raised full-year guidance again, and investing in GameStop stock is proving to be one of the best ways for Fools to capitalize on the latest cycle in video game hardware and software.
Second-quarter results announced this morning saw total sales jump 38.9%, as same-store sales advanced an astounding 29.1% and GameStop opened 150 new stores across the globe. Management described the latest generation of video game consoles and related games as a "cycle within a cycle" as the customer base is as wide as ever, spanning from serious gamers to casual players, and it counted an impressive nine hardware platforms, stemming from an array of offerings from Sony's (NYSE:SNE) PlayStation, Microsoft's (NASDAQ:MSFT) Xbox, and Nintendo.
For gaming neophytes, myself included, the consoles stem from PlayStation's PS3, PS2, PSP; the Nintendo Wii and DS; and Xbox 360. Nintendo's success with the Wii has been a surprise, and the advantage of investing in GameStop is that it benefits regardless of which console or game proves the most popular. For the coming quarter, it expects record-breaking sales from Xbox's Halo 3 and impressive results across Electronic Art's (NASDAQ:ERTS) Madden NFL franchise.
Strong top-line trends continue to make their way to the bottom line, as second-quarter earnings grew almost sixfold to $0.13. That doesn't sound like much, but it beat analyst expectations by about $0.04. This implies that results are accelerating, which management confirmed by increasing full-year guidance to $1.45-$1.48 on total sales growth of 20%-22%.
The earnings conference call confirmed just why GameStop is succeeding despite serious competition from the electronics retailers, as well as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), which offer consumers convenient locations and low-price options on hardware and software. Management detailed that PS2 consoles are selling well, even though they were introduced more than seven years ago. It also sold about 6,000 copies of Madden NFL 08 for the older Nintendo Game Cube.
So while higher-volume games and consoles can be had at giant retailers, GameStop is one of the few locations where dedicated gamers can find older systems and used games. The combination of product depth and early innings of the latest video-game cycle are doing wonders for the firm's growth, and the game appears far from over.
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GameStop, Electronic Arts, and Nintendo are Stock Advisor picks, while Microsoft and Wal-Mart are Inside Value picks. Check out any newsletter free for 30 days.
Fool contributor Ryan Fuhrmann is long shares of Microsoft but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
