TMO Scoop - Apple CFO Anderson: Retail Stores "Creating Significant Growth"

by , 8:30 AM EST, February 26th, 2004

Apple Chief Financial Officer Fred Anderson told a gathering of investment analysts on Monday that Apple Computer's retail stores are creating "significant growth" to the company's bottom line, and that there is optimism profitability will improve through more focused sales techniques.

During a Goldman Sachs Technology Investment Symposium in Phoenix, Arizona, Mr. Anderson, along with Peter Oppenheimer, Apple's Senior Vice President of Finance, talked about the company's direction in hardware, software and retail operations.

Mr. Anderson said the gross profit margin for Apple's retail stores was 3.3 percent, generating US$9 million in profit on revenues of US$273 million during the latest quarter.

Mr. Anderson said he is "very pleased" with the profitability of the existing 76 stores. "Our stores are creating significant growth for Apple," he said. "Somewhere between 40 and 50 percent, depending on the quarter, of our sales are to non-Mac users, so it's definitely converting switchers to the platform."

Mr. Anderson said the goal now is to increase gross profit margins of the retail stores.

"We're not making any predictions, but if (store sales people) are able to achieve - and I say IF - the objectives they have for improving same store sales going forward, that's just going to enhance further the profitability we're enjoining today on the retail stores," he said.

Mr. Anderson repeated that the company has developed a financial model based upon the sales experience of existing stores that can better predict profitability.

"We can predict with a fairly good degree of accuracy the sales of a new MSA (Metropolitan Statistical Area) market that we might be evaluating to enter based upon the sales historically correlated with the Mac base within a 10 to 15 miles radius of a planned store location," Mr. Anderson said. "It's a pretty good prediction of how much revenue we would be able to do for a store. So we don't plan to open any new stores that we don't believe we have a really good chance to at least break even in the first year of operation."

Mr. Anderson said there were no plans to move or down-size any existing stores, but admitted, "some of the store locations in the first year of operation, had we had it to do over again, we would have put a small store (at 4,000 square feet) rather than a standard store (at 7,000 square feet) because the markets weren't large enough to justify a larger store."

On other issues...

• Mr. Oppenheimer would not directly answer the question as to the profit margins Apple gets from software, except to say, "the margins that we earn would look very much like a stand-alone software company."
• Mr. Anderson made it clear that Apple isn't working on porting other software applications to the Windows platform, as it did with iTunes, "but where we think it makes business sense overall for Apple to port software to Windows...then we're open to consider it."