A sign outside an Amazon sorting center in New York on April 25.BRENDAN MCDERMID/Reuters

Amazon.com Inc AMZN-Q delivered a disappointing quarter and outlook on Thursday as the e-commerce giant was weighed down by higher costs to run its warehouses and deliver packages to customers.

The shares fell 9 percent in after-hours trading.

After a prolonged surge in sales during the COVID-19 pandemic, Amazon is facing a litany of challenges. The company’s expenses increased by offering higher wages to attract workers. A fulfillment center in New York City has voted to create Amazon’s first US union, a result the retailer is contesting. And higher fuel prices risk lowering consumers’ disposable income as well as making delivery more expensive for Amazon, the world’s largest online retailer.

Amazon’s forecast shows that raising the price of its Prime fast-shipping club last quarter may not be enough to shore up its profits. The company expects to lose up to $1 billion in operating income this quarter, or gain up to $3 billion. That’s down from an operating profit of $7.7 billion in the same period last year.

“This was a difficult quarter for Amazon with trends in all key areas of the business going in the wrong direction and a weak outlook for the second quarter,” said Andrew Lipsman, principal analyst at Insider Intelligence.

Still, there were bright spots, like Amazon Web Services, the division that new CEO Andy Jassy was running before taking the company’s top job last year. The unit increased revenue 37 percent to $18.4 billion, slightly above analyst estimates.

Jassy said the company has finally met the warehouse’s capacity and staffing needs, but still has work to do to improve productivity.

“This may take some time, particularly as we work through ongoing supply chain and inflationary pressures,” he said in a press release. “We see encouraging progress across a number of customer experience dimensions, including delivery speed performance, as we now approach levels not seen since the months immediately preceding the pandemic in early 2020.”

Amazon’s results challenged consumer demand. While online store sales fell and the number of products sold was flat in the first quarter, the retailer’s chief financial officer, Brian Olsavsky, said the company was pleased with the pace of purchases by shoppers. Inflation hasn’t depressed typical order patterns so far, he said.

Net sales were $116.4 billion in the first quarter, in line with analyst expectations, according to IBES data from Refinitiv.

Amazon reported a loss of $3.8 billion, or $7.56 per share, compared with a profit of $8.1 billion, or $15.79 per share, a year earlier. That partly reflected a $7.6 billion decline in the value of his stake in electric vehicle maker Rivian.

In North America, the company’s largest market, sales rose 8 percent while operating expenses soared 16 percent to $71 billion.

Olsavsky told reporters that the company had about $6 billion in higher costs than a year earlier, including $2 billion in inflationary pressures. These ranged from higher salaries, even though the company has largely withdrawn its signing bonuses, to fuel costing 1.5 times as much as it did a year ago. The Russian invasion of Ukraine has contributed to the rise in prices, Olsavsky told analysts.

Amazon aims to streamline transfers between warehouses to control expenses. It is also in the unusual position of having excess storage and transportation capacity, costing it about $2 billion in the first quarter.

That means Amazon needs to fill more orders to justify the space, said Scott Mushkin, founder of research firm R5 Capital. The capability is likely to come in handy on Prime Day, Amazon’s annual sales blitz. The company announced Thursday that the event will take place in July.

“Now they have a huge amount of distribution and logistics infrastructure. To take advantage of it, they need the volume,” Mushkin said.

The e-commerce giant’s results in traditional retail have been mixed. In March, Amazon said it planned to close its 68 book stores, pop-up stores and other home goods stores, while also focusing more on groceries. It recently automated two Whole Foods locations so they don’t have cashiers, for example. The company’s physical store sales grew 17 percent to $4.6 billion.

Amazon’s outlook reflects broader industry challenges. Just this week, one of Amazon’s partners, United Parcel Service Inc, said it expected growth in e-commerce deliveries to slow.

Amazon’s projected net sales will be between $116 billion and $121 billion for the second quarter. Analysts had expected $125.5 billion, according to IBES data from Refinitiv.

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