Apple Stores Sales Grew To US$282 Million In 2002, Failed To Earn Profit

| Apple Stock Watch

Apple released its Form 10-K SEC filing for fiscal 2002, a document that has revealed many things about the companyis operations. First and foremost of those things is the companyis retail operations. Appleis retail Apple Store strategy has been the center point of its quest for renewed growth. The company has looked at and used the Stores as its chief weapon to get its products in front of more potential computer buyers, and as a way to insure that those products were being properly presented.

The strategy was also one of the most criticized of Appleis strategies, though most of that criticism came more from pundits, rather than analysts, and the comparison to Gatewayis own far-flung and crumbling retail empire was inevitable. In reality, Appleis retail strategy has been a raging success as evidenced by the 365,000 people that visited an Apple Store during Thanksgiving week. As we pointed out in our coverage of that news, thatis some 5 times the number of people that attend a Macworld Expo event. For the entire fiscal 2002 year, Apple claims some 2.25 million visitors to the retail locations.

While the Apple Stores have been effective from a marketing standpoint, the operations from those stores have yet to yield a profit. According to Appleis 10-K filings, retail operations yielded a US$22 million loss for fiscal 2002, with US$3 million of that coming in the 4th quarter, which ended in September.

When the Apple Stores were launched in May of 2001, Apple CFO Fred Anderson said: "We expect the retail business to break even during the holiday quarter ending December 31. We expect a slight profit for fiscal i02. The terrorist attacks on New York of September of that year, and the accompanying global economic downturn, derailed those plans for a profit.

In terms of sales, however, the Apple Stores have generated substantial revenues for the company. 2002 retail revenues clocked in at US$283 million, an increase of 13,894% over 2001is sales of US$19 million when the company only had 8 stores open for a few months. Apple had some 40 stores open by the end of fiscal 2002. According to Apple:

During 2002, approximately 39% of the Retail segmentis net sales came from the sale of Apple-branded and third-party peripherals and software. This compares to 21% for the Company as a whole. With an average of 35 stores open, the Retail segment achieved average annualized revenue per store during the fourth quarter of approximately $12 million and had approximately 2.25 million visitors.

Apple books the sales at its retail operations as if it was any other retailer. Specifically, the company counts sales of its products as revenue, but only counts profit derived from its retail margins towards retail operations. Gross margins on the products are accounted for as normal operations from the companyis manufacturing operations.

In other words, though the retail operations didnit turn a profit during 2002, the sales from retail did contribute towards the overall profits for the company. With company-wide gross margins coming in at 28%, this means that retail sales contributed some US$56,600,000 towards Appleis operations, offsetting the US$22 million in losses from retail operations. That number isnit exact as some of Appleis retail sales come from the sale of third party peripherals and software, but it does offer a rough look at the overall contribution Appleis retail operations offer to the company.

Apple spent US$106 million in capital expenditures on retail operations, This refers to money spent to open new stores. During 2001, Apple spent some US$92 million in this area. Capital expenditures count as money outpout, but a portion of that money remains on the books as assets.

Apple reported net earning of US$65 millions during fiscal 2002.

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