Apple's retail initiative is delivering results, claimed Apple's chief financial officer Fred Anderson yesterday.

Apple's traffic records showed 3.5 million visitors ?half of whom were non-Mac users, he claimed. Apple's retail operation lost $1 million on revenues of $148 million, but this was offset by its $23 million manufacturing profit on goods sold through the stores, Anderson explained. The division made $102 million in the last quarter.

The company's success in attracting interest from the Wintel world has also been boosted by its iPod MP3 player; the company shifted 216,000 iPods in the quarter - half of these to Windows users.

Anderson discussed a recent Apple initiative in which it has placed its own staff within 174 CompUSA stores. This has delivered "significant" gains: Mac sales climbed 42 per cent, with "beyond the box" sales (software, peripherals, third party) rising 43 per cent as a result of the strategy.

He said: "We truly believe we are gaining market share in the consumer market," said Anderson. "We now control more of the sales in that market. The strategy of investing in retail is beginning to pay off."

He added: "We've noticed that consumers tend to buy the higher-end products in retail."

A Prudential analyst asked Anderson what "the end game" of the retail stores really is, Anderson replied: "We view retail as our key strategy to control the point of sale, and to reach out to Windows users and convert them. It is a key strategy to drive growth."

"The stores are heading toward break-even at store level, and they bring in switchers," he said. "We think that's the smart thing to do, attract switchers and increase market share."

There are costs to setting up the retail chain, but as more stores open these are falling, as the company gains skill, experience and efficiency, Anderson indicated.

He also revealed Apple to be now building smaller Apple Stores - bringing costs down 40 per cent. "We have a really good shot to break even, maybe to make a small profit," he said.

Anderson noted that five million Windows users had visited Apple's Switch Web site, though there is no way of telling who bought Macs as a result.

He revealed that direct sales - to education, in the retail outlets and over the Internet - accounted for 34 per cent of sales in the quarter. He added that 46 per cent of Apple's sales come through the online Apple Store. However, Apple operates an online store for its dealers (to buy stock) only, and the 46 per cent figure does include channel sales.

Despite such successful strategic initiatives, the company still returned an $8 million loss in the quarter. This was exacerbated by a number of one-off charges: $8.5 million costs to close Apple's Singapore manufacturing facility, $6 million to reorganize PowerSchool, and a further $2 million in charges reflected a change in the company's accounting practices, following the WorldCom and Enron debacles.

"Early indications are that it was not a strong holiday season overall for the PC sector - though we returned higher sequential revenue," said Anderson.

Anderson predicted revenues and margin for the upcoming March quarter to be flat, though boosted by lower operating expenses. "A slight profit is expected," he said.