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Open Wide for Chipotle

The meaty burrito keeps rolling at Chipotle Mexican Grill (NYSE: CMG  ) . The fast growing chain of fresh-Mex restaurants posted another blowout quarter yesterday, on the strength of resilient 10.1% comps growth.

For the period, earnings more than doubled to $0.33 a share. Revenue inched 27% higher to hit $219.7 million. The results easily lapped Wall Street's expectations. That's nothing new for Chipotle; it has obliterated analyst targets for each of its first five posted quarters as a public company.

Chipotle is doing insanely well. The company has been able to string together double-digit comps growth for several consecutive years now. Yes, that streak may end here in 2007. The company is targeting unit level sales to grow in the low to mid single-digits. It's hard to complain, especially when a gain is a gain. Better still, its comps growth through 2007 will take place at stores that have seen their per-store sales soar 24% over the past two years.

On an operational basis, Chipotle's quarter was solid. Margins improved in every single line item in restaurant operating costs (labor, occupancy, and food). Increased efficiencies found the company serving 10 more customers per restaurant an hour during peak traffic times. Throughput is a major emphasis at Chipotle, and customers obviously don't mind the shorter wait times.

The perpetually improving dynamics at Chipotle make expansion even more lucrative. When the company went public a year ago, the return on investment of a new unit was 30%. In other words, it would make back 30% of its initial investment in the first year. The ROI is now up to 38%.

With 573 eateries currently open, Chipotle is looking to add between 95 to 105 new units this year. Most of those will open in existing markets, though the company will break into new cities like Philadelphia, Jacksonville, and Birmingham.

Chipotle's success in a crowded playing field is impressive. Yes, quick-service Mexican restaurants are everywhere -- but most of them are smarting. Wendy's (NYSE: WEN  ) finally gave up on Baja Fresh, and CKE Restaurants (NYSE: CKR  ) hasn't been able to aggressively grow La Salsa. On the cheaper end, YUM! Brands (NYSE: YUM  ) posted a comps decline at Taco Bell this past quarter after its unfortunate E. coli outbreak.

In short, few public companies -- save for perhaps Jack in the Box's (NYSE: JBX  ) Qdoba -- are getting it right. With so much real estate left to conquer, it seems as if Chipotle is just starting to roll the mother of all fresh-Mex burritos.

For more on companies selling south-of-the-border cuisine, check out:

Chipotle is a Rule Breakers recommendation. Find out why with a free 30-day trial.

Longtime Fool contributor Rick Munarriz can go for a Chipotle burrito about now. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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