Apple, Retail Stores Take Financial Step Backward

July 23, 2013

It’s as if a time machine catapulted Apple’s retail stores into the past—almost all of the chain’s latest quarterly financial figures were throwbacks to 2011, declining proportionally with the company’s overall results. The worldwide computer industry malaise may explain the company’s general performance. But the stores’ performance might be the result of on-going competition from other retailers, including outlets created by Apple itself. The retail stores reported revenue of $4.1 billion, the lowest since Q4 2011. The stores generated a profit of $667 million, the lowest since Q3 2010. Per-store revenues were down to $10.1 million, unmatched since Q2 2011. Only the number of visitors seemed to provide some optimism:  84 million, almost equal to the same quarter of 2012. Overall, the company reported revenues of $35.3 billion, just ahead of the same quarter of 2012. Profit was $6.9 billion, the lowest since Q4 2011. Perhaps not coincidentally, it took CFO Peter Oppenheimer over 15 minutes to mention the retail store financials during his conference call with analysts, behind mentions of all the products, iTunes store and education sales wins. During previous calls, it took Oppenheimer just a quick five minutes to touch on the retail segment.

Significantly, the stores’ contribution to revenue and profit-loss has dipped and flattened out over the past three years. At one point the stores provided almost 22 percent of overall revenues. Now that figure has fallen below 12 percent, and seems destined to remain there. The figures for profit-loss have similarly stalled in the 10 percent range (chart below). Both figures raise questions about how relevant the company’s retail stores now are, with thousands of outlets for Apple products both in the U.S. and other countries.

In particular, the iPhone is available at thousands of other outlets beyond Apple, and there were 31.2 million iPhones sold during the latest quarter, executives said. In one example, COO Tim Cook said that 80 percent of iPhone sales in Russia were made at retail stores. Conspicuously, Apple has no retail stores in the country.

During the call, Cook mentioned that China generated a significant 14 percent of the company’s revenue this last quarter. He took the opportunity to repeat a pledge he’s made several times before but never fulfilled: to double the number of retail stores in China over the next two years.

Neither executive mentioned upcoming retail store grand openings. However, Oppenheimer did say that by the end of fiscal 2013 there would be 27 new stores open. That is fewer than the figure of “about 30″ (figure edited) that he has provided during previous conference calls.

In response to an analyst’s question, Cook said he had nothing to announce about an iPhone trade-in program. Tipsters have said such a program was in the works as a way of bringing more iPhone sales to the retail stores. Cook did say he was not averse to such a program, and particularly liked the environmental aspect it of trade-in programs. He noted that several other retailers already have successful trade-in programs.

He said four stores had been relocated to larger spaces during the last quarter, bringing the fiscal 2013 total to 23 stores. Once again, the executives did not release figures on how many Macs were sold in the retail stores during the quarter.

Check the charts and graphs Web page for full financial information.

This chart shows how the contribution of Apple’s retail stores has declined over the past three years, and has stalled (yellow circle).

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