Amazon issued a poor quarter and forecast on Thursday as the e-commerce giant was overwhelmed by increasing expenses to maintain its warehouses and deliver items to consumers. A 9 percent drop in after-hours trading was reported.
Amazon is dealing with a slew of issues following a boost in sales during the epidemic of COVID-19. Because of the greater wages paid to entice staff, the company’s costs increased. A fulfillment center in New York City voted to organize Amazon’s first U.S. union, a decision the firm is fighting. Furthermore, when gasoline prices rise, customers’ discretionary cash may be reduced, while Amazon, the world’s largest online retailer, would have to pay more for delivery.
Customers who signed up for Amazon’s Prime service last quarter may not be enough to keep the company profitable, according to Amazon’s latest forecast. This quarter’s operating income could be as low as $1 billion or as high as $3 billion, depending on how the company performs. That’s down from an operating profit of $7.7 billion in the same time the previous year.
“This was a challenging quarter for Amazon with trends across every significant area of the business trending in the wrong way and a bad forecast for Q2,” said Insider Intelligence chief analyst Andrew Lipsman. Still, there were bright spots, including Amazon Web Services, the business that new CEO Andy Jassy led before inheriting the company’s top role last year. Sales rose by 37% to $18.4 billion, above experts’ expectations by a hair.
Jassy said the business has now satisfied its warehouse personnel and capacity demands, but it still has work to do in boosting productivity.
His press release warned that this could take some time as he deals with the ongoing inflationary and supply chain pressures. As of this writing, we’re at levels not seen since the months leading up to the pandemic in early 2020 in terms of customer experience, including delivery speed performance.”
Amazon’s results sparked a debate over customer desire. While online store sales decreased and the number of goods it sold remained unchanged in the first quarter, the retailer’s Chief Financial Officer Brian Olsavsky said the business was satisfied with the speed of consumers’ transactions. He added that inflation had so far had little effect on average purchasing habits.
According to Refinitive’s IBES statistics, first-quarter net sales were in line with analysts’ forecasts at $116.4 billion.
In comparison to last year, Amazon recorded a loss of $3.8 billion, or $7.56 per share, resulting in a net loss of $8.1 billion. In part, this was due to a $7.6 billion drop in the value of its interest in Rivian, an electric car manufacturer.
The company’s biggest market, North America, saw revenues rise by 8% but operating expenditures jumped by 16% to $71 billion…. About $6 billion in additional expenditures from last year, including an additional $2 billion in inflationary pressures were reported by Olsavsky to reporters. Although the corporation has mainly slashed its signing incentives, these included increased pay and gasoline that costs 1.5 times what it did a year earlier. Olsavsky told analysts that Russia’s invasion of Ukraine had pushed up costs.
Optimizing the movement between warehouses is a goal for Amazon in order to save costs. For the first quarter alone, the company had to fork up $2 billion because it had too much warehousing and transportation capacity.
According to Scott Mushkin, head of research company R5 Capital, it implies Amazon has to fulfill more orders in order to justify the space. Prime Day, Amazon’s annual sales bonanza, will certainly make good use of the extra storage. The event will be held in July, according to the company’s announcement on Thursday.
There is a massive distribution and logistics network in place currently. Mushkin explained that in order to make use of it, they need a lot of customers.
In brick-and-mortar retail, Amazon’s outcomes have been uneven. Earlier this year, Amazon announced that it will shut down all 68 of its bookshops, pop-ups, and other home goods outlets as it shifted its attention to food. Automating two Whole Foods shops, for example, was recently done by it. Retail sales at the company’s physical locations increased by 17%, reaching $4.6 billion.
For the second quarter, Amazon expects net revenues to be between $116 billion and $121 billion. According to Refinitiv’s IBES statistics, analysts expected $125.5 billion.
