The Latest

Wed Apr 16 22:17:54 PDT 2003

More:

April 16, 2003 7:33 p.m. EDT

Apple Targeting 70 Retail Stores By End Calendar Yr

DOW JONES NEWSWIRES

By Tom Locke
Of DOW JONES NEWSWIRES

DENVER -- Apple Computer Corp.'s (AAPL) retail stores continue to perform extremely well and the company is targeting an increase to 70 stores by the end of calendar 2003, Chief Financial Officer Fred Anderson said in a conference call Wednesday.

At the end of the fiscal second quarter, which ended March 29, Apple had 53 stores, Anderson said.

Apple's fiscal second-quarter gross margin of 28.3% was up 70 basis points from the December quarter and was higher than expected, Anderson said. That was "primarily due to lower component costs and a stronger mix of portables and direct sales."

The higher gross margin enabled Apple to post higher-than-expected earnings for the quarter. Apple posted fiscal second-quarter net income of $14 million, or 4 cents a diluted share. That was a 65% drop from the $40 million, or 11 cents a diluted share, earned a year ago, but higher than the Thomson First Call consensus estimate from analysts of 2 cents a share.

Reported operating expenses of $422 million, including a $3 million pretax restructuring charge, were "slightly higher than our guidance" due to the restructuring charge and stronger-than-expected foreign currencies," Anderson said.

Because of the large budget deficits in many states, the U.S. education market continued to experience funding pressure, he said. "Our CPU (central processing unit) unit sales through the U.S. education channel were down 14% from the year-ago quarter."

On the plus side, Apple saw strong demand for its portable computers, driven by new PowerBook products.

Apple shipped 711,000 CPU units during the fiscal second quarter, and a record 42% of those were portables. The results were "boosted by the success of our new 12-inch and 17-inch PowerBooks," said Chief Financial Officer Anderson.

The company shipped 256,000 iMac computers, and sales of Powerbooks "surged to 166,000," Anderson said. Sales of iBooks were down slightly from a year ago, due to cannibalization by the new 12-inch PowerBooks, he said.

Sales of business-oriented Power Mac G4s "continued to be sluggish" despite price performance improvements, according to Anderson. Including servers, 156,000 units were shipped. That was down 26% from a year ago, and flat versus the December quarter.

Overall unit shipments were down 13%, but higher average selling prices resulted in revenue that was almost flat compared with a year ago, he said. Average revenue per system was more than $2,000, he said, "driven by a greater percentage of beyond-the-box sales, especially software and display, as well as the richer mix of portables."

Apple posted fiscal second-quarter revenue of $1.475 billion, down 1% from the $1.495 billion of a year ago. Revenue was flat with the first quarter, in line with the company's forecast at the time of its first-quarter earnings announcement.

Second-quarter revenue came in ahead of the consensus of analysts surveyed by Thomson First Call, which estimated revenue of $1.459 billion.

Looking at revenue per product segment, iMacs generated $302 million in fiscal second-quarter revenue, versus $448 million a year ago; iBooks - $151 million, versus $180 million a year ago; Power Mac G4s - $293 million, versus $383 million a year ago; PowerBooks - $353 million, versus $198 million a year ago; peripherals and other hardware - $216 million, versus $153 million a year ago, and software and other - $160 million, versus $133 million a year ago.

Apple retail stores' revenue was $135 million for the quarter, down seasonally 9% from the $148 million in the December quarter, but that was expected, according to CFO Anderson. Apple added two stores early in the fiscal second quarter, bringing the total to 53.

Average revenue was about $2.6 million per store during the quarter, which was flat with a year ago. Over 3 million people visited the company's retail stores in the quarter, Anderson said, and about 50% of customers buying systems in the stores don't currently have a Macintosh computer.

Cash and short-term investments rose by $64 million versus the December quarter, to $4.526 billion.

Asked in the conference call about how the company plans to use its cash, Anderson noted that Apple has a board of directors' authorization to buy back around $283 million worth of its shares, and it hasn't made any repurchases since September 2001. He declined to talk about the possibility of using cash for acquisitions, and he declined to say anything about dealings with Vivendi Universal SA (V).

The Los Angeles Times reported last week that Apple was in talks to buy Vivendi's Universal Music Group division for $5 billion to $6 billion.

Vivendi has been trying to sell some assets and raise roughly $7 billion to handle liquidity problems.

The Wall Street Journal reported Monday that it was unclear how serious talks had become and that Apple never submitted a formal bid. It said Vivendi had discussed with Apple Chief Executive Steve Jobs the possibility of investing $1.5 billion for a minority stake or buying the entire music division.

In a press release Wednesday, Jobs said that Apple has "never made any offer to invest in or acquire a major music company."

Anderson reiterated guidance in the Wednesday press release for the fiscal third quarter of "approximately flat" revenue versus the March quarter and a "slight profit."

In addition, he said that gross margin and operating expenses are expected to be "relatively flat" in the fiscal third quarter versus the March quarter. Other income and expenses are expected to "decline significantly" to about $15 million. The tax rate is expected to stay at 28%.

If revenue is flat sequentially for the fiscal third quarter and matches the $1.475 billion of the second quarter, it would come in below the current Thomson First Call consensus estimate from analysts of $1.503 billion.

The Thomson consensus earnings-per-share estimate for the fiscal third quarter is 5 cents. It's difficult to compare that with the company's general guidance of a "slight profit."

In after-hours trading Wednesday, Apple shares were down 17 cents, or 1.3%, at $13.07, compared with a 4 p.m. EDT closing price of $13.24, according to Nasdaq.com.

URL for this article:
http://online.wsj.com/article/0,,BT_CO_20030416_009691,00.html

----

Tim. Naegele

www.naegele.com

___________