There's no disputing Apple's success since the release of the iPhone four years ago. Last week I published a forecast that suggests Apple's revenue for the fiscal year ending in September will reach $112 billion, up from $65.225 billion in FY 2010. In the recent March quarter the Apple iPhone represented roughly 50% of the company's revenue. The release of the Apple iPad has accelerated the company's revenue growth and contributed significantly to the 83% revenue gain in the same March quarter. Sales of the Apple iPad may create as much as 25% of the more than $40 billion in revenue I expect the company to generate in the upcoming holiday quarter.
Apple Retail Stores As A Source of Success
But for all of the attention lavished on the iPhone and the iPad, there is a component of Apple's continuing success that is often overlooked. It's the success of Apple's retail stores and in particular the positive impact Apple's global chain of over 300 retail stores is having on Apple's oldest and most enduring product, the Macintosh line of personal computers.
The graph and table data below illustrate the continuing rise in Apple retail store revenue and the corresponding percentage of total revenue generated by retail store activity. For the first six months of FY 2011 (the December and March quarters) retail store revenue rose 92.6% and represented 13.7% of the reported revenue for the company. In the same six-month period Apple's total revenue rose 76.2%. Over the most recent four fiscal quarters the pace of revenue growth at the retail stores has outstripped the pace of revenue growth for the company as a whole.
The rate of growth in retail store revenue is due in part to the opening of new stores and in part to the mutual halo effect among Apple's hardware device lines. The debut of the Apple iPad just over one year ago has had a positive impact on retail store foot traffic and the resulting sales activity.
Apple Store | % of | Apple Store | % of | Retail Mac | Overall Mac | |
Quarter | Revenue | Total Revenue | Mac Units | Mac Units | YOY Gain | YOY Gain |
FQ1 ’09 | 1,746,000,000 | 14.70% | 515,000 | 20.40% | 2.18% | 8.84% |
FQ2 ’09 | 1,377,000,000 | 15.16% | 438,000 | 19.77% | -4.37% | -3.19% |
FQ3 ’09 | 1,492,000,000 | 15.33% | 492,000 | 18.90% | 3.36% | 4.29% |
FQ4 ’09 | 2,041,000,000 | 16.72% | 670,000 | 21.95% | 12.42% | 16.93% |
FQ1 ’10 | 1,971,000,000 | 12.57% | 689,000 | 20.49% | 33.79% | 33.20% |
FQ2 ’10 | 1,683,000,000 | 12.47% | 606,000 | 20.59% | 38.36% | 32.81% |
FQ3 ’10 | 2,578,000,000 | 16.42% | 677,000 | 19.50% | 37.60% | 33.38% |
FQ4 ’10 | 3,566,000,000 | 17.53% | 874,000 | 22.50% | 30.45% | 27.25% |
FQ1 '11 | 3,847,000,000 | 14.39% | 851,000 | 20.59% | 23.51% | 22.96% |
FQ2 ’11 | 3,191,000,000 | 12.94% | 797,000 | 21.20% | 31.52% | 27.76% |
Mac Sales At The Apple Retail Stores
For six consecutive quarters the rate of growth in Mac unit sales at the retail stores has eclipsed the rate of growth of Mac unit sales growth for the company as a whole. At the current rate of unit sales growth, the retail stores will sell over 1 million Macintosh personal computers for the first time in the September quarter. The back-to-school quarter generates more Mac sales through the retail stores than any other quarter of the fiscal year.
The graph below highlights the consistent rise in year-over-year Mac sales at the retail stores over the most recent 10-quarter period. The graph also highlights the steady increase in the percentage of all Macs sold through the retail store chain. Apple's management has stated repeatedly about 50% of Macs purchased at the retail stores are to customers new to the Macintosh platform. The retail stores are a primary source for growth in the Mac's domestic and global market share and for introducing the Mac platform to new customers.
Macintosh Unit Sales Comparison
Since the first quarter of FY 2010 the retail stores have delivered a strong Mac unit sales performance relative to all of Apple's Macintosh sales channels combined. The retail stores also demonstrate a unique seasonality for Mac sales with the back-to-school quarter (Apple's FQ4) representing the quarter in which the stores deliver the highest percentage of total Mac sales for the company. The data suggests the retail stores are very important to Apple's efforts in the student market. For 20 consecutive quarters the Macintosh has outperformed the PC market in general. Apple's retail stores are now at the epicenter of that success. In FQ4 2010 the retail stores delivered 22.50% of all Macs sold and 17.53% of the company's reported revenue.
The graph below demonstrates the influence of the retail stores on total Macintosh unit sales over the 10 most recent fiscal quarters.
Conclusions
Apple's global chain of over 300 retail stores play an important role in the company's sales success and in particular serve as a catalyst for sales of Macintosh personal computers. For the past four quarters the pace of revenue growth at the stores has surpassed the rate of revenue growth for the company as a whole. Although the Apple iPhone is currently the company's flagship product, both the retail stores and the Macintosh line of personal computers remain vital to Apple's ability to maintain the record rates of revenue and earnings growth achieved in the first six months of the current fiscal year.
Robert Paul Leitao
Disclosure: The author is long Apple shares
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