On Monday Apple Inc. reported that its retail store financial results dipped for the third quarter of 2008 when compared to the previous quarter, but that revenue, profit and number of visitors all increased substantially when compared to the year-ago quarter. It was the second quarter of decline for the Retail segment, although admittedly the retreat comes in the aftermath of a record-breaking holiday first quarter. It’s not clear if the general economic decline in the United States contributed to the dip in retail figures, or if it’s related to other factors. Overall, Apple reported the highest quarterly revenue and profit in the company’s history, and record sales of nearly 2.5 million Mac computers. Revenue was $7.46 billion, generating a profit of $1.07 billion. The company sold over 11 million iPods and 717,000 iPhones during the quarter. The Retail segment reported revenues of $1.44 billion during the quarter, down slightly from the previous quarter, but over up 68% from the same quarter of 2007. The stores posted a profit of $297 million, down 11% from the previous quarter, and up 61% from the year-ago quarter. The stores sold 476,000 Macs during the quarter, and during a conference call CFO Peter Oppenheimer said the stores hosted 598,000 personal training sessions over the past three months.
The number of visitors to the retail stores reached 32 million during the quarter, down from the previous quarter, but up 77% from the same quarter of 2007.
Capital expenditures on the retail stores totaled $113 million during the quarter, the second-highest in the Retail initiative’s history (Q4 2007 was $130m). The figure was no doubt generated by the additional costs of the high-profile Boylston Street, Sydney and Beijing retail stores that were constructed during the quarter.
Oppenheimer confirmed that stores would open in Germany and Switzerland before the end of 2008, and he said the company will have 242 stores open by the end of this September, or 23 more stores than now. He declined to provide any details about specific future store locations when questioned.
In response to a question about international sales, COO Tim Cook said, “So overall, it was a very, very strong quarter in every major geographic region. And the store is off to a good start in Beijing. We’re very happy with what we see there thus far.”
Cook said the Best Buy sales program added about 170 stores during the quarter, for a total of 570 with an Apple-branded display section. He said about 30 additional Best Buy locations will receive their make-overs by the end of the summer.
In response to another analyst’s question, Oppenheimer explained that Apple is reinvesting some of its Retail segment profit back into the stores by way of remodeling older stores. “How are you thinking about continuing to flow that margin upside to the bottom line versus reinvesting in either store layout or resources to support what should be higher traffic, post the 3G phone launch?” asked Katy Huberty of Morgan Stanley.
Oppenheimer replied, “Well, to date, Ron (Johnson) has I think really done a–and his team a wonderful job of giving customers a great experience in the store and traffic just continues to go up.” He continued, “Ron is remodeling some of the early stores that we opened to give customers a better experience, so we are making investments in the stores and he, with the revenue growth, has been able to provide some leverage, as you point out, along the way.”
