The financial performance of Apple and its Retail segment took different tracks during the second quarter of fiscal 2006, with the company reporting its second highest revenue ever, and Retail revenues dropping substantially for the second consecutive quarter. Apple executives willingly attributed the downturn to a “pause” in purchases in anticipation of the upcoming Intel computer models, and the reluctance of Apple retail staffers to push end-of-life G5 models onto customers who didn’t immediately need a computer.
Apple revenues were a substantial $4.36 billion, while profit was tallied at $410 million. But retail segment sales totaled $636 million, up 11% compared to the same quarter of 2005, but down 41% compared to the previous quarter that included the holiday shopping season. Retail profit was $29 million for the quarter, down 31% from last year, and down 67% from the previous quarter. During a conference call, the executives didn’t explain why profit changes didn’t match revenues, although it’s explainable by a changing mix of product sales.
The retail stores’ contribution to Apple’s overall profit dropped by over half compared to the previous quarter. The profit contribution went from 15.9% in the first quarter of 2006 to just 7.0% in the current quarter. The revenue contribution slipped somewhat less, from 18.8% to 14.6%.
Customer traffic was down 31% to 18.1 million compared to the busy holiday quarter, which had established a new record for the stores. Oppenheimer said the retail stores are now “really focusing on the Intel transition.” He said the stores had switched product and windows displays, and graphics the moment that the Intel computers were announced by Steve Jobs. He acknowledged that the Intel announcement had negatively impacted retail store revenues and traffic. “Our sales teams really didn’t discourage people from waiting for Intel-based models,” and that staffers, “let customers buy what they wanted to.” Despite the drop in numbers, “We remain confident in our retail stores,” Oppenheimer said.
Perhaps most encouraging, Oppenheimer noted that new-to-Mac sales at the retail stores rose to about the 50% mark during the quarter, up from previous figures in the low to mid-40% range. Already, the majority of CPU sales are Intel-based machines, just 60 days after the new model announcements, he said.
Oppenheimer reiterated that the company would open 40 new stores during fiscal 2006, with “a little more than 30 in the United States.” He said the company had committed $43 million during the quarter on capital expenditures for the retail stores.
Oppenheimer also said the retail stores held 50,000 one-on-one training sessions with store visitors at the Studio Bars during the quarter, a figure not previously disclosed.
