Fast Casual Dining is a Winner (CMG, CAKE, BJRI, PNRA, BWLD, MCD)

Consumers who might remain unconvinced about an economic recovery still have to eat. And not all of them are eating at fast food restaurants.

Chipotle Mexican Grill, Inc. (NYSE:CMG) reported a third-quarter sales increase of 23%, year-over-year, and a diluted EPS gain of nearly 41%, completely blowing by analysts’ estimates. Diluted EPS came in at $1.52, far better than estimates of $1.30, and revenue of $476.9 million eclipsed estimates of $461.2 million. Competitors The Cheesecake Factory Inc. (NASDAQ:CAKE) and BJ’s Restaurants, Inc. (NASDAQ:BJRI) also topped expectations handily. Two other chains in the sector, Panera Bread Co. (NASDAQ:PNRA) and Buffalo Wild Wings Inc. (NASDAQ:BWLD) report earnings next week.

The fast casual dining sector, where these companies compete, has grown steadily for the past 12 months. Chipotle has posted new 52-week highs almost weekly for the past two months. BJ’s and Panera have also posted new highs recently. Fast food giant McDonald’s Corp. (NYSE:MCD) is also climbing to new highs consistently over the past two or three months. Only Cheesecake Factory and Buffalo Wild Wings have failed to post new highs in the past six months.

Fast casual dining combines fast service with higher quality food that customers are willing to pay more for. Chipotle has plans to open up to 130 new stores in 2010, and another 135-145 in 2011. For the rest of this year the company expects comparable store sales growth in the high single digits, although next year’s figure is forecast in the low single digits.

That drop in comparable sales could be a signal that the company is growing too fast. It wouldn’t be the first restaurant chain to suffer that fate. The most famous flame-out is probably Boston Market, which took the market by storm in the mid 1990s only to file for bankruptcy in 1998. Fast growth can be more a curse than a blessing on occasion.

The company now owns 1,023 restaurants. Chipotle has opened 67 stores so far in 2010 and in the third quarter comparable store sales were up 11.4%, the biggest increase in five quarters. In its earnings release, Chipotle noted that the increase in comparable store sales was driven by increased traffic.

Continuing that rate of growth, and managing it, will be a challenge for Chipotle going forward, but today the company can bask in its glory. The shares are up about 15% on about 4X normal volume. And yes, Chipotle did set a new 52-week high today.

Paul Ausick