Apple Watch Says It's Time to Buy the Stock -- The new timepiece should add to Apple's dominance in sales per square foot, a key financial metric. Barron's, by Jack Hough,
Opinions are mixed on Apple's new Watch, but it comes with one capability investors are sure to love. With an even modestly successful launch, it can generate sales per square foot at a level that for Apple (ticker: AAPL
), which already leads on that measure, will be the equivalent of creating a new Tiffany ( TIF ) and then some, using only a table or two at each Apple store. And it offers profit margins that jewelers can't match.
Sales per square foot is the dollar amount of merchandise a retailer sells each year divided by its total square feet of selling space. It's a key measure of success in the industry, even in the age of Amazon.com ( AMZN
). After all, e-commerce sales will grow a brisk 15.5% this year to $304.1 billion, but will still make up just 6.4% of total retail spending, predicts eMarketer.
To get a feel for the measure, start with Wal-Mart Stores ( WMT
), for which big stores translate into big sales or a projected $418 in sales per square foot during its current fiscal year. Best Buy ( BBY
) is expected to do more with less this year: $753 per square foot. Staples ( SPLS
) will likely do less with more: $260. Malls average $341 in sales per square foot, according to Advanced Retail Management Systems.
According to a report this past May by eMarketer, Apple leads retailers with sales of $4,551 per square foot, not including its online sales. Here's something that stands out about the next 14 chains on the list: Eight of them sell watches, whether prominently or on the side.
The highest ranked is Tiffany at No. 3 with sales of $3,043 per square foot; the lowest is No. 14 Movado Group ( MOV
) at $1,029. In between are Michael Kors Holdings ( KORS
), Coach ( COH
), Kate Spade ( KATE
), Birks Group ( BGI
), Signet Jewelers ( SIG
) and Tumi Holdings ( TUMI
). In addition to those eight, Deckers Outdoor ( DECK
) once dabbled in watches through a licensing agreement. Clothier Vince Holding ( VNCE
) will launch handbags next year as part of a broader push into accessories; don't be surprised if that eventually includes watches.
Watches cram a lot of value into a little space, which is one of the reasons they turn up so often on the sales-per-square-foot leaders list. High sales per square foot aren't everything. Murphy USA ( MUSA
) is No. 2 on the list because it sells gasoline and cigarettes out of tiny shops. It turns between one and two pennies of each sales dollar into earnings before interest and tax, or Ebit. But Apple will turn an estimated 29 cents of each sales dollar into Ebit during its current fiscal year, versus 21 cents for Tiffany and 14 cents for Movado. Tiffany and Movado use powerful brands to bolster the profitability of commodity goods. But Apple uses the combination of its brand and its software ecosystem to even more lucrative effect.
The Apple Watch won't compete with the iPhone any time soon in terms of its contribution to sales or profits. But it could prove a meaningful contributor to growth next year. For example, UBS analyst Steve Milunovich has taken a lukewarm view of the Watch, citing its need for daily charging and iPhone tethering, and Apple's approach so far of touting an endless list of features rather than focusing on a few key ones. But he nonetheless predicts sales of 24 million units next fiscal year, or 10% of today's potential sales base, rising to 40 million the following year. Apple's current fiscal year runs through the end of this month.
The Apple Watch starts at $349. Some estimates put the price of the top model at more than $1,000. Assuming an average selling price of $500, sales of 24 million units next year would add $12 billion to company sales. Wall Street predicts Apple's total sales next year will rise by $19.2 billion, or 10.7%, to $199.5 billion. But most of that is projected to come from iPhones. The early consensus for Watch sales is $6.1 billion. If Milunovich is right, the Street is guessing far too lowfor now. The consensus sales forecast for next year has already crept higher by $2.3 billion since the end of August.
Tiffany's sales, by the way, are expected to increase 8.4% this year to nearly $4.4 billion. Movado's are expected to grow 11.6% to $636 billion. For all the doubts surrounding the Apple Watch, it's likely to debut as a larger and more lucrative business than those two companies combinedpossibly much largerwhile keeping Apple's sales per square foot on top.
Note: Len is long AAPL.
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Earnings per square foot is only one thing to be taken into consideration. IMO there are other more important things to look at. I don't follow the retail sector as its not one I like (lots of competition, and fashion is subject to temporary trends.And fashion? Beware of companies marketing primarily to teenage girls!). Of course you can make money in almost anything if you are a frequent trader and have timing smarts. I believe retail had been doing terribly for a while, but may be moving up-- I don't know. For a short time I owned ANF and later KATE. If I remember, for a long time KORS was great. And I almost bought TIF-- but it had moved up and besides it doesn't pay a good dividend.
I've owned AAPL for a long time-- finally sold it for a small profit. IMO its one of the better companies out there (even before they came out with the watch). A great long term hold. (So why did I sell it? Mainly a change in my over-all game plan-- now looking mostly for stocks that are relatively safe and that pay high dividends. IMO, AAPL longterm will have good growth, and a dividend-- but the dividend is too small for my current approach-- I mostly buy things with slow growth, not looking for much capital appreciation but rather dividends which I reinvest... mainly looking for dividends over 4%).
When this seed was entered AAPL closed at 100.86. It has increased 27 % in five months.
The iWatch is not being sold yet.