The casual dining industry has taken it on the chin over the past half-decade as consumers have been trading down to cheaper alternatives.

#-ad_banner-#But companies that cater to high-income consumers have been resilient against a weak economy. Ralph Lauren (NYSE: RL), Tiffany & Co. (NYSE: TIF) and Coach (NYSE: COH) have all impressively outperformed the S&P 500 over the past five years.

These high-end retailers are all sought after by malls and shopping centers. That’s because these stores generate traffic.
 
But what these shopping centers also need is an anchor restaurant. And for that, their first choice is often the Cheesecake Factory (Nasdaq: CAKE).
 
That’s because it’s a destination restaurant — a place consumers go to for special occasions — so it doesn’t depend on mall traffic. Rather, it brings traffic to the malls. But mall traffic was down nearly 15% this holiday season, causing many investors to stay away from mall-related investments.
 
However, malls are still calling on the Cheesecake Factory. It remains the leader when it comes to restaurant metrics, including generating foot traffic. It ranks #1 in cash flow per unit, average unit volume and sales per square foot.
 
Because its metrics are better than those of its top competitors (including BJ’s Restaurants (Nasdaq: BJRI), Darden Restaurants’ (NYSE: DRI) Olive Garden and Texas Roadhouse (Nasdaq: TXRH)) the Cheesecake Factory tends to get its choice of mall locations. And in some cases, malls will cut rates and undergo renovations to attract top tenants like the Cheesecake Factory.
 
What makes the Cheesecake Factory so great is that it competes on a different level than Ruby Tuesday (NYSE: RT), Olive Garden and its other competitors. The Cheesecake Factory’s revenues tend to be heavily tied to consumer income levels. Thus, it has situated its stores in high-income areas. Over three-quarters of its stores are located in the wealthiest quartile of ZIP codes in the U.S.

	Flickr/portofsandiego
	The Cheesecake Factory has 170 locations and plans to open 10 more in 2014, with up to five outside the U.S.

Thanks to its ability to perform nicely regardless of the economic environment, the Cheesecake Factory has seen 16 straight quarters of same-store sales growth. 

The company has only about 170 restaurants. Compare that to Olive Garden’s more than 800 locations.

The Cheesecake Factory plans to open 10 restaurants in 2014, with up to five outside the U.S. The company is still developing its international expansion strategy, but this year’s target is the Middle East, which has a fast-growing hospitality market.
 
On the U.S. side, over two-thirds of its stores are on the West Coast. They are most notably in areas where the economies have yet to return to pre-recession levels, such as California and Arizona. So as state economies continue to see improvement and higher employment, the Cheesecake Factory should attract even more consumers. 

The company is also turning to smaller-format restaurants, which are easier to scale. The return on investment from its smaller venues has already been greater than expected.
 
The Cheesecake Factory is a relatively new dividend payer. But it has paid a quarterly dividend consistently since the second quarter of 2012, and its dividend yield is now up to 1.2%. Between its dividends and share buybacks, the company returned over $210 million to shareholders last year — almost 10% of its current market cap.
 
The company trades at forward price-to-earnings (P/E) ratio of 17 based on next year’s earnings estimates. And with its resiliency in a weak economy, there’s no reason that it shouldn’t be trading closer to the industry average. The restaurant industry average is close to 23; the Cheesecake Factory’s five-year average P/E is 21.
 
Risks to Consider: The key risk is food inflation. A sharp rise in the cost of key food costs (such as shrimp) would put pressure on its margins. The other notable risk is with store openings. Expansion is a key growth strategy, but missteps could lead to lower-than-expected revenue growth.

Action to Take –> Buy CAKE with a target of $58, which represents upside of over 20% and is based on a P/E of 21 on 2015 earnings per share of $2.75.

P.S. Dividends and share buybacks are great — but when you combine them with a third way of driving shareholder gains, you have a strategy that’s capable of delivering market-beating returns with the least risk. We’re so excited about this new strategy that we’re devoting an entire newsletter to it. To learn more, click here now.