Amazon Can't Beat This Brick-And-Mortar Retailer

Includes: AAPL, AMZN
by: Stephen Rosenman

Amazon (NASDAQ:AMZN) surprised, earning 28 cents, well-above the Street's 7 cent expectation, as sales grew 34%. Certainly an impressive beat, helping to send share prices up 14%. Well done, Mr. Bezos. However, a cautionary note: You've still have yeoman's work to be done when it comes to operating margins: Your 1.5% margins are razor-thin considering your sky-high 142 PE valuation.

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Yes, Amazon sales are booming. Yet, the company pales in comparison to one brick-and-mortar retailer, the physical store division of Apple (NASDAQ:AAPL). The Cupertino, CA company operates a group of 363 stores. The Apple division thrives in the growing world of on-line shopping: Comparable store sales increased 33% for the first six months of 2012. Apple retail stores have been increasing sales more quickly than Amazon, beating the Bezos juggernaut in 2010, 2011, and 2012. Despite Ron Johnson jumping ship to J.C. Penney (NYSE:JCP), store sales have strengthened.

In contrast to Amazon, Apple's brick-and-mortar division is wildly profitable

Compare Amazon and Apple retail's most recent quarters:

Most recent quarter to comparable year-ago quarter.

Apple's brick-and-mortar has been beating Amazon for years

The bottom line

Square the two off: No contest, Apple stores beat on both growth and margin. And, remember: Apple's retail division is its "slowest grower." Last quarter, Apple's sales grew at a 59% clip. Excluding brick-and-mortar, revenue increased to remarkable 62%.

The price tag for each: Amazon 143 PE versus Apple 14 PE. Valuations are upside down: Apple deserves a much higher PE; Amazon's nosebleed PE is insane.

Disclosure: I am long AAPL.

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