Apple Discusses Its Retail Stores and Best Buy Distribution

From last night's Apple earnings conference call transcript:

Peter Oppenheimer, CFO and Senior VP

It was another exciting quarter for the Apple retail stores. Fueled by very strong sales of MacBooks and MacBook Pros, the retail stores generated revenue of $715 million, representing 29% year-over-year growth. The stores generated $29 million in segment profit, excluding $148 million in associated manufacturing profit.

We opened 14 stores during the quarter, ending with 155. With an average of 146 stores open during the quarter, average quarterly revenue per store was $4.9 million.

Store traffic continued to be very strong, with over 17 million customers visiting our stores during the quarter. Based on the latest retail store survey, nearly 50% of customers buying Macs in our stores are new to the Mac.

One of the highlights of the quarter was the opening of our Fifth Avenue store in Manhattan. The store has quickly become our highest volume store, and we recently welcomed the store's 500,000th visitor. Customers are visiting the store in record numbers around the clock.

From the analyst Q&A session:

Keith Bachman - Banc of America Securities

I have a question on the retail side. There was some volatility between this quarter and last quarter in terms of both the units and revenues. I was just hoping you could speak to that a little bit, and I have a follow-up. Thanks.

Peter Oppenheimer

Yes, units, Keith, for Macs in retail were up 40% year over year. The response in the stores to both the MacBook and MacBook Pro was very, very strong. As I indicated, about half the Macs we sold were to people that had never owned a Mac before.

Keith Bachman - Banc of America Securities

Peter, just to be clear, was most of that delta, if you will, between the March quarter and the June quarter of units up 50% this quarter in total at retail, versus 7 last quarter? Was that disproportionately driven by the new Mac notebooks?

Peter Oppenheimer

We had much more availability of our Intel-based Macs, yes. As we said in the last call in the March quarter, Ron really began to focus from January at Macworld on the Intel transition and we did not have products in January, in particular. With our having availability, not only of the MacBook Pro and Intel-based Mac but now the MacBook, he had just a fantastic quarter in the stores, not only with Mac sales but just sales in general....

Harry Blount - Lehman Brothers

In terms of the retail performance, if I look at revenue per walk-in customer and revenue per store, I am looking at revenue per walk-in customer is down for the sixth consecutive quarter on a year-over-year basis. I am wondering if you have a sense as to why that might be. Also, on the same-store sales, we are also seeing that down year over year the last two quarters.

Peter Oppenheimer

Traffic through the stores has just been phenomenal. We had over 17 million people come through the stores this past quarter. As I said in my prepared remarks, our Fifth Avenue store has seen over 500,000 people since it has been open in May.

The average store sales were down slightly year over year, but our total revenue from the stores is up about 29%. The average store revenue was down, a result of iPod sales being relatively flat year over year, as we have had a greatly-expanded channel, but our Mac sales continue to increase and we are up 50% year over year...

Bill Fearnley - FTN Midwest Securities

On the direct versus indirect mix, could you give additional color on that as well? That’s it, thanks.

Peter Oppenheimer

Sure. In the quarter, our direct sales, which we define as sales through our retail stores, online stores directly to customers and the iTunes Music Store, were 50% in the June quarter, up from 44% in the March quarter...

Rebecca Runkle - Morgan Stanley

Good afternoon, two questions, first on retail distribution. Can you just confirm what pilots you are currently running and have underway and when approximately they began? I have a quick follow-up.

Tim Cook

Rebecca, the main one that we are running right now is with BestBuy. We are in a few of their stores, half of which have Apple people selling product and half of which do not. We are working with BestBuy to evaluate those results. We have been doing that for about two months.

Rebecca Runkle - Morgan Stanley

Nothing else currently underway?

Tim Cook

Not with a major partner. We have some select things that are of a smaller nature.