GameStop Corp. (GME) posted first-quarter 2010 earnings of 48 cents per share, which topped the Zacks Consensus Estimate by a penny and increased 14% from 42 cents per share last year.

The better-than-expected performance was primarily driven by a higher top-line, a significant decline in interest expenses (down 18%) and absence of a debt extinguishment expense, which existed in the year-ago period.

Quarterly Details

Quarterly revenue grew 5% to $2,083 million from $1,981 million in the prior-year quarter. The growth was mainly attributable to the addition of new stores over the last year, partially offset by a 1.6% decline in same-store sales.

In terms of sales mix, new video game software sales grew 13% to $873.1 million, mainly driven by new releases such as Battlefield Bad Company 2, God of War III, Final Fantasy XIII, Pokèmon SoulSilver, HeartGold and Bioshock 2. Sales from used video game products rose by 4.1% to $570.8 million. However, continued sluggishness in demand led to a 12.0% year-over-year decline in new video game hardware sales to $348.3 million.

GameStop’s gross margin during the quarter remained flat year over year at 27.4%, while operating margin declined 50 basis points year over year to 6.0%.

GameStop ended the quarter with cash and cash equivalents of $431.9 million and debt-to-capitalization of 14.3%, compared to $230.3 million of cash and debt-to-capitalization of 17.0% in the prior-year quarter.

Guidance & Zacks Consensus

Moving forward, GameStop continues to expect earnings of $2.58 to $2.68 per share in fiscal 2010, assuming flat-to-2% growth in same-store sales. The guidance remains in line with the Zacks Consensus Estimate of $2.62 per share, which dipped a penny over the past month as 2 of 16 covering analysts lowered expectations.

For the second quarter of fiscal 2010, GameStop anticipates earnings of 25 cents to 27 cents per share, assuming a same-store sales range from -2% to +2%. This guidance is lower than the Zacks Consensus Estimate of 29 cents per share, which remained constant over the past 2 months.

We are currently Neutral on the stock.

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