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.

Walgreen (NYSE: WAG) has managed to beat analyst estimates two quarters in a row now, but I wouldn't call the latest results anything to write home about. Second-quarter overall sales improved 10.5% on comparable-store sales growth of 4.7%. Mid-single-digit comp sales continue to look impressive in a soft retail environment, but the trend has slowed for five quarters in a row now, and stands at about half of when it was a comp machine a year ago.

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 (NYSE: CVS) has found the formula to translate its acquisition of Caremark into 20% EPS growth last year. Even a regional player like Longs Drug (NYSE: LDG) -- with far less clout than Walgreen -- is making hay in its West Coast niche.

Competition in the drugstore sector is not likely to get easier anytime soon. Wal-Mart (NYSE: WMT) has ambitions to move into the clinic business, and other mass merchants like Target (NYSE: TGT) have no intention of giving up on the traffic that the prescription business drives. Still, I like the corner drugstore model these days, and with further solid comps sales growth, I'd expect Walgreen to live up to its premium P/E multiple. Unfortunately, earnings beat notwithstanding, the last three quarters don't make that grade in my book.

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