Amazon’s earnings and outlook fall short as warehouse and fuel costs soar

April 28 (Reuters) – Amazon.com Inc (AMZN.O) delivered a disappointing quarter and outlook on Thursday as the e-commerce giant was overwhelmed by higher costs to run its warehouses and deliver packages to customers.

The shares fell 9% in after-hours trading.

After a long sales surge during the COVID-19 pandemic, Amazon faces a litany of challenges. The company’s expenses ballooned as it offered higher wages to attract workers. A fulfillment center in New York has voted to create Amazon’s first U.S. union, a result the retailer disputes. And the higher price of fuel risks lowering consumers’ disposable income just as it makes delivery more expensive for Amazon, the world’s largest online retailer.

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Amazon forecasts show that the price hike of its Prime fast delivery club last quarter may not be enough to support its profits. The company expects to lose up to $1 billion in operating profit 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.

“It was a tough 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 Insider Intelligence principal analyst Andrew Lipsman.

Still, there were bright spots, like Amazon Web Services, the division headed by new CEO Andy Jassy before he took over the company last year. The unit increased revenue 37% to $18.4 billion, slightly ahead of analysts’ estimates.

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

“It may take some time, especially as we deal with inflationary pressures and the ongoing supply chain,” he said in a press release. unheard of since the months immediately preceding the pandemic in early 2020.”

Amazon’s results challenged consumer demand. As online store sales fell and the number of products sold remained flat in the first quarter, the retailer’s chief financial officer, Brian Olsavsky, said the company was pleased with the pace of shoppers’ purchases. Inflation has not 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 posted 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 reflects a $7.6 billion drop in the value of its stake in electric vehicle maker Rivian.

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

Olsavsky told reporters the company had about $6 billion in additional costs over the previous year, including $2 billion from inflationary pressures. These ranged from higher salaries – although the company has cut signing bonuses significantly – to fuel costing 1.5 times what it did a year ago. Russia’s invasion of Ukraine has helped push prices higher, Olsavsky told analysts.

Amazon aims to optimize transfers between warehouses to control expenses. It’s also in the unusual position of having excess warehousing and transportation capacity – costing it about $2 billion in the first quarter.

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

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

The e-commerce giant’s results in physical retail were mixed. In March, Amazon announced plans to close its 68 bookstores, pop-ups and other home goods stores, while shifting its focus to groceries. He recently automated two Whole Foods locations to make them cashier-less, for example. Sales at the company’s physical stores rose 17% to $4.6 billion.

Amazon’s outlook reflects broader industry challenges. Just this week, one of Amazon’s partners, United Parcel Service Inc (UPS.N), said it expects e-commerce delivery growth to slow. Read more

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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Reporting by Tiyashi Datta in Bengaluru; Editing by Sriraj Kalluvila and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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