GameStop Shows Retail Still Has Life

GameStop’s (NYSE:GME) profit report released earlier Thursday, with modest gains in quarterly profit and revenue, demonstrates that video game retailing isn’t going to be replaced by digital downloads and app stores just yet.

For its fiscal year just completed in January, GameStop hit a record high of $9.47 billion in total sales, which brought in $408 million in profit, growth of more than 4% and 8% year-on-year, respectively.

The popularity of products released last Christmas �– particularly ActivisionBlizzard (NASDAQ:ATVI) games Call of Duty: Black Ops and World of Warcraft: Cataclysm and Microsoft’s (NASDAQ:MSFT) Kinect motion control interface — were directly responsible for GameStop’s record numbers.

That Black Ops has also remained the No. 1 selling game in 2011, topping the NPD Group’s February sales data, is promising for Gamestop’s current fiscal year. As is the continued success of Microsoft’s Kinect — although sales have slowed in January and February, Microsoft has still managed to sell more than 2 million Kinects during what’s considered a slow sales period in the gaming market.

Game sales were strong across the year for GameStop, totaling $3.97 billion, and with a new Call of Duty coming in the fall as well as� new Grand Theft Auto and Take-Two’s (NASDAQ:TTWO) LA Noire, that trend should continue.

The Kinect may not be enough to keep GameStop’s hardware sales strong across the year, though, which were down overall last year. New hardware releases are on the horizon, but the new portable game players from Nintendo (PINK:NTDOY) and Sony (NYSE:SNE), the Nintendo 3DS and NGP, are unproven quantities. Will people buy those new, expensive handhelds when they’re already buying iPhones and iPads from Apple (NASDAQ:AAPL)?

That’s the question for the whole gaming industry as well. But there is hope inside GameStops’ numbers. While the $290 million earned from digital game sales represents just the smallest fraction of the company’s 2010 sales, that was still 61% growth.

GameStop is making the move to a digital world, but slowly. If the company is going to become the boon to investors the way it used to be, it will have to double that growth in fiscal 2011.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at�@ajohnagnello�and�become a fan of�InvestorPlace on Facebook.