GameStop shares are sharply lower this morning despite better-than-expected results for its fiscal first quarter ended May 3.

For the quarter, the video game retailer reported sales of $1.81 billion, beating the Street consensus of $1.72 billion. EPS of 37 cents a share, or 38 cents after you back out debt retirement costs of a penny a share, beat the Street consensus of 35 cents, and topped the company’s own guidance of 32-33 cents.

For the second quarter, the company sees comp store sales up 12%-14%, with EPS of 26-28 cents a share. The Street has been looking for 26 cents.

For the January 2009 fiscal year, GameStop sees profits of $2.30 to $2.39 a share, with comp store sales growth of 10% to 12%. The Street has been looking for $2.33 a share. The company had previously been expecting $2.25 to $2.34 a share.

In the release, the company veritably gushes about the outlook for video game sales. The company noted that the installed base of video games grew 31% in 2007, “the highest incremental growth in the history of the business,” and he says hardware unit sell-through should match those levels in 2008. The company said it opened 210 new store in the first quarter, and is on target for 550-600 new stores in 2008, half of those outside the U.S.

Despite all that, the stock is selling off hard: GME is down $4.69, or 9.2%, to $46.15.

by Eric Savitz of Tech Trader Daily