Motley Fool Stock Advisor recommendation Costco (NASDAQ:COST) reported its first-quarter numbers this morning, and the results surpassed the company's own expectations and guidance. Still, the shares are off about 2% today, which I think creates a buying opportunity.

For the quarter, overall sales growth was 12%, and same-store sales growth was 9%. Earnings per share came in at $0.45, which is 12.5% ahead of last year's $0.40 figure. The $0.45 is also a penny ahead of the guidance the company provided back in October, and it matches analyst estimates. In addition, the company generated $12.93 billion in total revenue (including membership fees), which beat analyst estimates by more than $100 million. The only item on the income statement that was less than stellar was operating income, which only increased by 8.3%. However, that's still not a bad performance, considering that it includes the negative effects of a slightly larger stock options expense.

The business itself looks as healthy as ever, and there are reasons to think that future growth will be just as strong as it has been the last few years. For starters, the company plans to open 28 new warehouse clubs this year, which is more than the 15 or so it has opened in each of the last two years. True, the company had rosier opening targets at the beginning of the 2005 fiscal year, yet eventually failed to open as many clubs as planned. Still, I think Costco may meet its stores target in fiscal 2006; considering the nine new warehouse clubs it's already opened during the first quarter, 28 for the year seems reasonable. For free cash flow hawks, the downside of this accelerated expansion is that capital expenditures will be in the $1.2 billion-$1.3 billion range this year, instead of last year's $995 million.

However, the company still expects to generate plenty of free cash flow to fund share repurchases and cover its sub-1% dividend. Speaking of share repurchases, the company has already begun executing its newest $1 billion authorization by purchasing 6.6 million shares for $316 million in the last two months.

One of the more interesting topics discussed on the company's conference call was inflation, which is hitting paper and plastic goods the hardest. Nonetheless, Costco's broad purchasing power with suppliers allows it to mitigate some of the price increases. The same can be argued for competitors BJ'sWholesale Club (NYSE:BJ) and Wal-Mart's (NYSE:WMT) Sam's Club, as well as large grocers such as Kroger (NYSE:KR). But Costco and the other warehouse clubs gain some additional leverage because they purchase fewer products in larger quantities. Often, Costco carries just one or two brands for a given product, and in many cases one of those brands is its own private-label offering. In a bizarre way, inflation may become a competitive advantage for Costco.

I'll wrap up with an interesting aside about the power of Costco's business model. Costco has managed to accomplish something that large French retailer Carrefour gave up on and Wal-Mart is still striving for: profitability in Japan. Better yet, it's gotten there with just five Japanese warehouse clubs. Considering Japan's extremely competitive retail environment, and the typically small purchases of Japanese consumers, that's simply amazing.

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Nathan Parmelee owns shares in Costco, but has no financial stake in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.