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Apple Inc. (AAPL)’s Retail Sales Are Bright

Apple Inc. (NASDAQ:AAPL)’s retail stores have been holding up very well, as the company’s glossy stores have been pulling in more and more customers. Even though more consumers are leaning towards online shopping, especially for lower ticket items, a majority of consumers still love shopping at stores, especially for higher priced items like phones, tablets, etc.

In the U.S., more than 90% of retail sales still take place through brick-and-mortar outlets, according to RetailSails. Apple Inc. (NASDAQ:AAPL)’s ability to provide a great shopping experience to consumers who enjoy looking and testing out the gadgets of the company is a great positive for the company, especially as its reliance on emerging markets increases.

Apple Inc. (NASDAQ:AAPL)

Retail is doing well for Apple

Sales of hardware and accessories from Apple Inc. (NASDAQ:AAPL)’s stores across the world made up ~12% of total sales in the last quarter. However, it is a steadily growing stream of revenues that are rather stable. In Q2 FY2013, Apple stores saw a decent uptick in store visitors with 91 million, up from the 85 million the company saw a year ago. Total sales from the retail outlets stood at $5.2 billion, which represents strong growth rate of ~19% on a Y/Y basis from $4.4 billion a year ago. This growth in retail revenues was largely driven by higher demand for the iPhone, the iPad, and the newly launched iMac.

The segment’s operating income from its retail presence stood at $1.1 billion, which represents a 5% Y/Y decline, which can be primarily attributed to the lower price per unit across a number of hardware devices. This trend can also be evidenced by the company’s decline in overall gross margins as well.

In Q2 FY2013, the average revenue per store notched up to $13.1 million in the quarter, which is a decent acceleration from the year ago number of $12.2 million per quarter.

At the end of the last quarter, Apple Inc. (NASDAQ:AAPL) had 402 stores, of which 151 stores were situated outside the U.S across 13 countries. And in Apple’s recent Worldwide Developer Conference, the company’s management stated that Apple’s retail store count now exceeds 407 stores built in 14 countries outside the U.S. The company’s foot traffic now exceeds more than 1 million daily visitors across its retail locations, which translates into more than 90 million visitors each quarter.

Focus on newer territories

Apple Inc. (NASDAQ:AAPL) is investing heavily across the board, which includes ramping up the number of stores in place. The company’s management pointed to capital expenditures totaling ~$10 billion for fiscal year 2013, of which roughly $850 million will be directed toward building new retail store facilities.

This fixed investment had a negative impact on the company’s operating margin, which was roughly 29% in the last quarter. In addition, the retail business has a much higher portion of fixed costs, as well as heavy staffing costs.  Apple Inc. (NASDAQ:AAPL)’s retail business had roughly 42,600 employees at the end of the last quarter.

In spite of the short-comings of the retail business, the company plans to expand its retail footprint by opening up around 30 new stores this fiscal year. And most of these newer stores, i.e. roughly 75% of them, will be located outside the U.S. This serves as a great promotional tool to ramp up the company’s brand value and achieve higher penetration rates of its products in some rapidly growing countries. Apple has a large fan-base outside North America, and the build out of exclusive Apple stores is a great way to tap into these markets to gain incremental revenues from existing and newer fans of Apple products.

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