Some companies are better at playing the guidance game than others. You know how it goes. Delivering an earnings "beat" means a nice share-price pop on release day, so companies like to manage expectations down -- making their final results look better. Sometimes it works, but over time an efficient market will see through the game and price the shares appropriately.
Earnings per share of $0.69 were 2 cents better than Wall Street expectations, but the company had trouble getting earnings growth to match the top line. This quarter, EPS advanced just 6.5%, which lagged sales growth.
It's not like anything stands out as wrong, just general slippage across the board. Gross margins were down 14 basis points for a variety of reasons including mix shift and softer seasonal sales. Management is getting its expenses back in shape after a large increase last fall, but they still climbed 11 basis points as a percentage of sales. Though the culprit was expenses related to a large number of new store openings (121 for the quarter).
Investors were enthused about this quarter's earnings beat, bidding the shares up nearly 5% in early trading. But the stock carries what I consider a premium multiple of more than 18 times trailing 12-month earnings.
And I can't help but wonder if the company is losing its edge. CVS
Competition in the drugstore sector is not likely to get easier anytime soon. Wal-Mart
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, and owns shares of Wal-Mart, but none of the other companies mentioned in this article. The Fool has a disclosure policy.
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