Apple's retail results will no longer be separately reported. Source: Apple.
Out with the old and in with the new! It appears that's what Apple (AAPL 1.68%) is thinking regarding to its financial reports. After reporting a blowout fourth fiscal quarter of 2014, the company appears to be making two rather large changes to its financial statements effective in fiscal 2015. First, the company will no longer report results from its retail stores separately, and the company will no longer break out Apple TV, iPod, and Beats revenues separately. It will instead report these products in a new "other" category along with the Apple Watch.
For individual investors and analysts, obviously we'd prefer more information to less. Whenever companies change their reporting structures, the obvious question for investors is whether the newly reported format will make it easier or harder to understand performance. Here's what investors should know about the reporting changes.
Folding retail into geographical results leads to "collaboration"
After 13 years of reporting retail results separately, the company will now report retail results within the existing geographic segments. In a filing, the company reports collaboration as the reason for the change:
As the Company continues to expand its business, management believes collaboration across its online, Retail and indirect channels is integral to better serve its customers and optimize its financial results. ... The Company's reportable operating segments will consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific operations, and the Retail segment will no longer be classified as a separate reportable segment.
It should be noted that Apple's retail revenue segment growth has slowed considerably recently but is still growing at a healthy clip. On a year-over-year basis, Apple's retail segment grew 6.1% in fiscal 2014 versus the annualized growth rate of 26.6% from 2009 to 2014. For perspective, this is lower than Apple's overall revenue growth during these periods; last year Apple grew revenue 6.9% on a year-over-year basis and 38% from 2009 to 2014.
Whether intentional or not, aggregating the retail results in with the geographical segments gives time for Angela Ahrendts, the newly installed senior VP of retail, to fully install her retail strategy without the judging eyes of analysts looking for short-term benchmarks. And if she is able to improve and reinvent Apple's already-impressive retail operations as she did with then-struggling brand Burberry, then ultimately this could be a good move for Apple.
"Post-Jobs and iPods ..."
The next change is Apple's "other" reporting category that should be titled "Post-Jobs and iPods." Because of the declining nature of the iPod, this reporting category is essentially a referendum on Tim Cook by containing Beats revenue and Apple Watch. Beats and Apple Watch are widely expected to be the revenue growth drivers in this category, and both were initiated after Steve Jobs' departure. But by aggregating these products, it will be hard for investors to derive individual product revenue for any one of them.
Investors will have to depend on third-party estimates for Apple Watch sales. Source Apple.
And that's why it appears Apple chose to create the "other" category: secrecy. During the fourth-quarter conference call, Cook said, "I'm not very anxious in reporting a lot of numbers on Apple Watch." He went on to explain that competitors would be interested in knowing individual product results from the watch. Analysts and investors will thus have to depend on third-party estimates for revenue and unit sales figures.
Final thoughts
Analysts are typically a cynical lot; many look at changes in reporting structure and form as a way to de-emphasize negative data. And while I'd love to see Apple's retail numbers and individual product figures broken out, I don't think Apple's making these changes to obscure poor results. It appears Cook is changing the reporting structure to reflect his vision for the company. Considering the company is close to all-time highs, it seems Cook's vision is paying off.
