Video Game retailer, GameStop Corp (GME - Analyst Report) posted better-than-expected second-quarter fiscal 2015 results. Both adjusted earnings per share of 31 cents and revenues of $1,761.9 million topped the Zacks Consensus Estimate of 24 cents and $1,727 million, respectively. Robust performances of Technology Brands segment and collectibles category were the driving factors.

On a year-over-year basis, adjusted earnings and revenues grew 41% and 1.8%, respectively.

Including one-time items, earnings per share came in at 24 cents, up couple of cents from the year ago period. However, there wasn’t much activity witnessed on the trading front as the stock closed a mere 0.1% down in aftermarket session. Consolidated comparable-store sales (comps) grew 8.1% with domestic comps up 10.8% while international comps increased 1.8%.

By sales mix, new video game hardware sales were down 2.2% to $324.9 million. Moreover, new video game software sales fell 6% to $467.2 million, marred by tougher year-over-year comparison with Watch Dogs and Mario Kart 8.

Strength was seen in Mobile and Consumer Electronics’ category as sales were up 26.9% to $142.2 million while Video Game Accessories’ sales, too, grew 17% to $125.8 million.

Pre-owned and Value Video Game Products category’s sales of $560.8 million were up a mere 0.5%. Increase in downloadable content for Witcher 3 and Batman: Arkham Knight led to 11.1% growth in adjusted digital receipts to $199.1 million. However, forex headwinds primarily led to a 20.5% dip in digital sales to $46 million.

The Technology Brands segment, reported revenue growth of 62.3%. This segment is expected to sustain its growth momentum, backed by its collaboration with AT&T, Inc. (T - Analyst Report) and the Apple Inc. (AAPL - Analyst Report).

During the quarter, gross profit increased 5.4% to $580.5 million while gross margin expanded 110 basis points to 32.9% owing to rapid growth across digital, mobile and collectibles categories. Operating income increased 40.9% to $123.9 million and operating margin expanded 80 basis points to 2.9%.

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $136.2 million, net receivables of $118.3 million and shareholders’ equity of $1,967.3 million.
During the quarter, GameStop bought back $60.7 million worth of shares and remains on track to buy back $200 million worth of stock in fiscal 2015. As of Aug 27, 2015, the company has $340.2 million worth of stock under repurchase authorisation.

Guidance

Given several AAA titles releases in the second half and consistent strong momentum in the Technology brands segment and collectibles category, management remains upbeat about the company’s performance in the second half. Moreover, driven by share repurchases, management has upgraded the fiscal 2015 earnings guidance. Earnings per share are now expected to be in the range of $3.66 to $3.86, up from $3.63 to $3.83 projected earlier. The Zacks Consensus Estimate is pegged at $3.89 per share. GameStop expects sales growth in the fiscal to be in the range of flat to up 5%, and comps are estimated to increase in the range of 2% to 7%.

For the third quarter, the company expects earnings per share in the range of 53-60 cents while comps growth is anticipated to be around 1-4%. Revenues will range from flat to positive 4%. The company expects software sales to fall in the quarter due to tougher year-over-year comparisons. The Pre-owned category also might see a downtrend as mix shifts to next-gen from prior gen consoles.

GameStop still intends to open 450–550 new Technology Brand stores during the fiscal but has increased full year profits growth rate to 40–50% from 30–40% expected earlier. .

At present, GameStop carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is Aaron's, Inc. (AAN - Snapshot Report) which sports a Zacks Rank #1 (Strong Buy).