Apple retail stores turn out best third quarter yet

[AppleInsider]

The fledgling retail business at Apple Inc. continued its steady pace of growth last quarter, with its U.S.-based stores alone posting both higher revenue and Mac unit sales than that of the entire worldwide segment during the year-ago quarter.

For the third fiscal quarter of 2007 ended June 30, Apple's 164 U.S. retail stores combined for sales in excess of $800 million, which was significantly above the $715 million in revenue recorded for the entire Apple retail segment -- including international stores -- during the third fiscal quarter of last year.

Well-placed sources indicate that the segment's rising revenue was driven not only by an increase in store count, but also significant growth amongst many of the company's existing locations. Nearly every store was able to handily meet or beat internal sales targets for the quarter that had been prescribed by the corporate division, those sources say.

Of those Apple retail stores that have been operating for at least a year, 90 percent saw flat to modest growth over the year-ago quarter, including nearly 45 percent which saw revenues rise in excess of 25 percent. Sales were particularly strong in the South Central and Mid-Atlantic regions, sources added.

Fueling the record setting third quarter, those same sources said, was a sharp uptick in sales of the Cupertino-based firm's Mac computer line. The 164 U.S.-based stores combined to sell more than 275,000 systems, besting all but two quarters in Apple Retail segment history before tallies from international stores are factored into the mix.

iPods were also an important factor for Apple Retail during the third quarter, but were a less material growth driver for the outlets than their Mac counterparts. The U.S.-based stores combined to sell over 730,000 of the digital media players before all attention turned to iPhone during the final two days of the quarter. When broken down, that figure turns out to just over 50 players per store, per day.

Apple Retail Performance (past six quarters) | Source: ifoAppleStore

Apple, which reports results of its fiscal third quarter on July 25th, is expected to offer additional color on its retail performance, including actual profits, foot traffic, and revenue totals that factor in its international chain.

[ View this article at AppleInsider.com ]

[digitalclips]

Great news for AAPL

[Booga]

The chart shows $715M as the revenue for last year this quarter, and says this quarter's revenue will be $715 and suggests that's some sort of increase. What am I reading wrong?

[ajhill]

Originally Posted by Booga

The chart shows $715M as the revenue for last year this quarter, and says this quarter's revenue will be $715 and suggests that's some sort of increase. What am I reading wrong?

Not sure what you're reading, but I see quarterly profits up from $29 million to $32 Million year over year. But what's more important is CPUs sold going from 154k to 275K that's approaching a double in one year, Yikes!

Apple retail stores are really a play on converting customers over from PC. There is a lot of hand holding that goes with helping people make the transition. Judging from the numbers it looks like it may have been worth it.

You should have some skepticism over these numbers, since the quarter that just concluded was Apples 3rd quarter, not their 2nd, so whoever made up this chart was definitely NOT in the Apple accounting department.

Remember, advice is worth what you pay for it. And even then 80% of the people who give advice on Wall Street don't even beat the averages.

[aegisdesign]

Originally Posted by AppleInsider

For the third fiscal quarter of 2007 ended June 30, Apple's 164 U.S. retail stores combined for sales in excess of $715 million, or slightly above the revenue recorded for the entire Apple retail segment -- including international stores -- during the third fiscal quarter of last year.

Apple only has 16 international stores today according to ifoAppleStore, most of which are mini stores and most of which have opened in the last year.

They've added about 40 stores in total worldwide since last year, so it's no wonder the sales of US stores has eclipsed worldwide. I'd be shocked if it hadn't.

[physguy]

Originally Posted by aegisdesign

Apple only has 16 international stores today according to ifoAppleStore, most of which are mini stores and most of which have opened in the last year.

They've added about 40 stores in total worldwide since last year, so it's no wonder the sales of US stores has eclipsed worldwide. I'd be shocked if it hadn't.

I believe the three references to international stores are only clarifications since some of the numbers quoted include international stores and some don't. I don't believe they are comparing US and international store sales.

[BillH]

Why is the discussion about these being 3rd quarter numbers when the chart reads as being 2nd quarter?

[melgross]

Originally Posted by BillH

Why is the discussion about these being 3rd quarter numbers when the chart reads as being 2nd quarter?

Because while some third quarter numbers are known, the tally isn't finished yet, and so isn't official. It won't be until the 25th. The report contains official charts for what is official, thus, nothing from the third quarter is represented on them yet.

Wait for the 25th.

[BillH]

Originally Posted by melgross

Because while some third quarter numbers are known, the tally isn't finished yet, and so isn't official. It won't be until the 25th. The report contains official charts for what is official, thus, nothing from the third quarter is represented on them yet.

Wait for the 25th.

Maybe I'm lost here but the 275,000 CPU figure was from the second quarter...or is it same as?

[scottiB]

Of those Apple retail stores that have been operating for at least a year, 90 percent saw flat to modest growth over the year-ago quarter, including nearly 45 percent which saw revenues rise in excess of 25 percent. Sales were particularly strong in the South Central and Mid-Atlantic regions, sources added.

Flat to modest growth as defined by the article is at least a 25% increase? Pretty high standards. What's standard growth? 65%?

[ajhill]

If you ask me these numbers look too low. The Apple stores that I've visited have consistently been packed. With lots of people leaving the stores with bags and boxes of new iPods, Macs, oh, yeah some phone thing.

I'd wait for the real numbers that will be given on the conference call. Hopefully with the tally for the iPhone launch, or at least the two day sales total, 29th and 30th of June.

Analysts said that they would consider iPhone a grand slam if it sold 400,000 units in the first weekend. Well, I think we beat that number. What comes after a Grand Slam?

[mark2005]

The chart and the 275K number are creating confusion here, as the chart has not been updated to reflect the 3rd quarter yet. ifoapplestore will update it after Apple releases the data next week and files its 10-Q soon after. So assuming that the article itself is really speaking of the 3rd quarter based on info from "well placed sources," then Apple retail US-only has sold as many Macs (275K) during this 3rd quarter, as Apple retail worldwide sold during the 2nd quarter.

I also don't understand the sentence quoted by scottiB above. 90% (of stores open more than a year) saw flat to modest growth but nearly 45% (of what) saw revenues rise in excess of 25%. In excess of 25% would certainly be more than modest growth, but 90 and 45 is more than 100. So the 45% includes new stores? Otherwise, what gives?

[Kasper]

Originally Posted by BillH

Maybe I'm lost here but the 275,000 CPU figure was from the second quarter...or is it same as?

Yes -- But we're also reporting that during the third quarter, for which data has not 'officially' been released, US stores combined for the same total. Once international stores are thrown in, it will be closer to 300,000 Macs for the third quarter.

No international data from the third quarter was factored into the report.

Best,

K

[Kasper]

Originally Posted by mark2005

I also don't understand the sentence quoted by scottiB above. 90% (of stores open more than a year) saw flat to modest growth but nearly 45% (of what) saw revenues rise in excess of 25%. In excess of 25% would certainly be more than modest growth, but 90 and 45 is more than 100. So the 45% includes new stores? Otherwise, what gives?

90 percent of the stores that have been operating for at least 1 year saw sales rise or remain flat. 45 percent of stores that been operating for at least 1 year saw sales rise at least 25 percent.

About 10 percent of stores reflected a slight decline in sales from the year-ago quarter.

Best,

K

[melgross]

Originally Posted by scottiB

Flat to modest growth as defined by the article is at least a 25% increase? Pretty high standards. What's standard growth? 65%?

No, read it again.

Flat to modest growth for the 90% of the stores categorized there means 0% growth, to a maximum of 25%, with the average somewhere between those numbers, perhaps around 12.5%. That's modest.

[AISI]

Originally Posted by AppleInsider

The fledgling retail business at Apple Inc. continued its steady pace of growth last quarter, with its U.S.-based stores alone posting both higher revenue and Mac unit sales than that of the entire worldwide segment during the year-ago quarter.

The increase is not significant, this quarter the number of U.S.-based stores (165 stores) is higher than the total number of Apple retail stores in the same quarter of 2006 (Apple ended the June 06 quarter with only 155 stores worldwide). 165 U.S.-based stores allegedly posted both higher revenue and Mac unit sales than the entire worldwide segment of 155 stores in the year-ago quarter. Wasn’t that to be expected?

[aaarrrgggh]

It's strong revenue growth, but flat profit growth from the way I read it.

Since the margins are expected to increase on the hardware side, I have trouble believing that revenue growth doesn't equal profit growth, although I know a number of the stores were closed for ~2 weeks this quarter for remodeling. That could impact profits some, since they carry the overhead over fewer selling days?

[AISI]

Originally Posted by aegisdesign

Apple only has 16 international stores today according to ifoAppleStore.

With the Madison, WI store opened on July 7, Apple operates 186 retail stores, including 21 international stores.

• Total Apple retail stores as of July 7: 186
• Located in the United States: 165
• Rest of the world: 21

Canada, 4

• Toronto, Yorkdale
• Toronto, Eaton Centre
• Toronto, Sherway Gardens
• Laval, Carrefour Laval

Italy, 1

• Roma Est

Japan, 7

• Ginza - high-profile - Tokyo
• Shinsaibashi - Osaka
• Nagoya Sakae - Nagoya
• Shibuya
• Fukuoka Tenjin
• Sendai Ichibancho
• Sapporo

UK, 9

• London, Regent Street
• Birmingham, Bullring
• Kent, Bluewater
• Manchester, Trafford Centre
• London, Brent Cross
• Sheffield, Meadowhall
• Manchester, Arndale Centre
• Southampton, WestQuay
• Kingston, Bentall Centre

[melgross]

Originally Posted by aaarrrgggh

It's strong revenue growth, but flat profit growth from the way I read it.

Since the margins are expected to increase on the hardware side, I have trouble believing that revenue growth doesn't equal profit growth, although I know a number of the stores were closed for ~2 weeks this quarter for remodeling. That could impact profits some, since they carry the overhead over fewer selling days?

I don't think that Apple cares too much about profits for their retail operations. That's not to say that they don't want profits. But, you can see from the expenses assocciated with the stores, that Apple is spending more money on those operations all the time.

Capital costs for the design and construction. Costs for the leases. Costs for the much larger sales and management forces. Advertising, etc.

If Apple had a somewhat fixed operation size, it would be different. But expansion costs a good deal of money. Many companies have gone out of business because of a too rapid expansion.

The fact that Apple can expand by about 40 stores a year, a number that is increasing over time, and still can show an increasing profit, is significant.

Remember that these stores are, for Apple, a way that they can showcase their goods in an environment that simply isn't possible otherwise, as they have complete control over the experience.

Additionally, they receive all of the profit from the list prices of their products, rather than having to share them with both a layer of distribution, and then a second layer of retail.

Because of that, the stores are as much a publicity and advertising methodology as they are an actual retail operation.

That must be taken into account.

[lkrupp]

I distinctly remember all analysts being in complete agreement that Apple retail stores would be an unmitigated disaster. When Apple announced their plans to open retails stores the analysts all referred to the debacle of Gateway Computer's retail stores.

But then the same analysts predicted failure of the iMac because it didn't have a floppy drive, was an all-in-one product (which nobody wanted), and came in goofy colors.

They also predicted the failure of the iPod because it didn't have a FM tuner and was too expensive.

They predicted the failure of the iPhone because it was too expensive and didn;t have a real keyboard.

In fact they predicted with great certainty the demise of Apple Computer, Inc. itself, writing tome after tome explaining the "spiral of death" Apple was in.

But yet people still listen to them and make their stock buying decisions based on what they say. Could all the people who chose to write off Apple and its stock sue the analysts for malpractice?

Just wondering.

[Ireland]

Sold my shares today, had to break sooner or later.

[Ireland]

Originally Posted by AISI

UK, 9

• London, Regent Street
• Birmingham, Bullring
• Kent, Bluewater
• Manchester, Trafford Centre
• London, Brent Cross
• Sheffield, Meadowhall
• Manchester, Arndale Centre
• Southampton, WestQuay
• Kingston, Bentall Centre

England 9, Wales and Scotland are still bare. Not to mention the whole rest of Europe, besides one store in Italy.

[SpamSandwich]

Originally Posted by Ireland

Sold my shares today, had to break sooner or later.

You sold?! I'm thinking of getting out 100% soon too. I think they're reaching their upper limits.

[Mel Farrell]

Originally Posted by SpamSandwich

You sold?! I'm thinking of getting out 100% soon too. I think they're reaching their upper limits.

Extraordinary... Did you forget what happened after Eve ate the apple in the Garden of Eden? Potential apple customers - around 5 Billion, and growing...

[aaarrrgggh]

Originally Posted by SpamSandwich

You sold?! I'm thinking of getting out 100% soon too. I think they're reaching their upper limits.

They will safely hit $160 within 2 months unless a problem with the general market hits. I will admit that the latest run-up does make it tempting to cash out, but the analysts are so far off on the earning expectations this time around that there is sure to be some real movement after quarterly results and actual iPhone sales are released. Add to that a solid upgrade to the Mac and iPod lineup, and you have the instruments for some huge growth.

Last year, Apple managed sequential growth between Q2 and Q3 (15%). The analysts have Apple at a 17% decline for this year. My guess is that they come in at a 10% sequential growth this quarter, or $0.96 per share.

[AISI]

Originally Posted by lkrupp

I distinctly remember all analysts being in complete agreement that Apple retail stores would be an unmitigated disaster. When Apple announced their plans to open retails stores the analysts all referred to the debacle of Gateway Computer's retail stores. […] But yet people still listen to them and make their stock buying decisions based on what they say. Could all the people who chose to write off Apple and its stock sue the analysts for malpractice?

In 2001, after the Gateway debacle, and when Dell was king, it was common and reasonable to think that any retail strategy was doomed to fail. Most analysts didn't factor in the power of the Apple brand, etc. but Apple's success was far from a sure thing at the time, there was no iPod halo effect, the iPod had just been unveiled. In FY2001 Apple's revenue had been halved since peaking in 1995, Apple posted a $25 million net loss and Mac sales were down to 3 million, from 4.5 million in FY1995. When the first two Apple retail stores opened in May 2001, Apple was not in good shape.

These days most analysts are Apple supporters. And the article has nothing to do with analysts, anyway. I don't see your point.

[melgross]

Originally Posted by SpamSandwich

You sold?! I'm thinking of getting out 100% soon too. I think they're reaching their upper limits.

I'm holding for now. As long as Apple has products lined up every few months, the price will hold, or rise. As long as the market doesn't take a plunge.

[melgross]

Originally Posted by AISI

In 2001, after the Gateway debacle, and when Dell was king, it was common and reasonable to think that any retail strategy was doomed to fail. Most analysts didn't factor in the power of the Apple brand, etc. but Apple's success was far from a sure thing at the time, there was no iPod halo effect, the iPod had just been unveiled. In FY2001 Apple's revenue had been halved since peaking in 1995, Apple posted a $25 million net loss and Mac sales were down to 3 million, from 4.5 million in FY1995. When the first two Apple retail stores opened in May 2001, Apple was not in good shape.

These days most analysts are Apple supporters. And the article has nothing to do with analysts, anyway. I don't see your point.

His point is that it's just another, I'm smarter than the analysts, tirade.

[cuencap]

I CAN NOT wait for the next few months - we have the school sales, and then the holiday lineup

1 - New iMacs
2 - Touchscreen iPods
3 - iPhone software updates
4 - ETC...

[JeffDM]

Originally Posted by lkrupp

But yet people still listen to them and make their stock buying decisions based on what they say. Could all the people who chose to write off Apple and its stock sue the analysts for malpractice?

Why? Apple bucks trends all the time. Apple has succeeded where others fail. Apple rarely tells people what they will do differently than similar efforts that have failed. Without having a track record, which didn't exist in some of your examples, such as the retail effort, there was no reason to expect they would succeed. All other attempts for computer brand stores have pretty much failed save for the Sony store, and those stores are of a different focus anyway, a consumer electronics store with a few computers, where Apple had a computer store with a single consumer electronics device. Apple was in a slide towards a world of hurt in 2001 as well. I doubt that an objective person can be reasonably expected to have predicted otherwise.

[JeffDM]

Originally Posted by melgross

I don't think that Apple cares too much about profits for their retail operations. That's not to say that they don't want profits. But, you can see from the expenses assocciated with the stores, that Apple is spending more money on those operations all the time.

Aren't they still getting staggering returns on the investment? They open tiny little stores that, at least at one time, can make a considerable fraction of sales of a large big box store.

[melgross]

Originally Posted by JeffDM

Aren't they still getting staggering returns on the investment? They open tiny little stores that, at least at one time, can make a considerable fraction of sales of a large big box store.

I wouldn't call them staggering, because Apple is doing a continual expansion, with the very high levels of investment that calls for.

As I mentioned earlier, if Apple stopped expanding at the rate they are, their retail profits would soar.

Look at the numbers presented, and you can see the ROI.

Apple does do well enough. Retail is a low ROI business. In terms of large businesses, only grocery stores do worse, though restaurants come close.