By Karen Weise
SEATTLE: Online shopping during the
coronavirus pandemic drove sales at
Amazon far higher, the company said Thursday. But the cost to deliver those products, and to keep its workers safe, is taking a big bite out of the company’s profits.
Amazon reported that it had $75.5 billion in sales in the latest quarter, up 26% from a year earlier, surpassing analyst expectations. Profit fell 29%, to $2.5 billion, worse than expected, because it cost more to meet the increased customer demand.
Amazon’s chief executive, Jeff Bezos, signaled that profits may continue to fall in the near future.
“If you’re a share owner in Amazon, you may want to take a seat, because we’re not thinking small,” he said in a statement.
Typically, the company would expect to make around $4 billion in operating profit in the next quarter, Bezos said. “Instead,” he added, “we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”
The company said those costs included pay increases, declines in warehouse efficiency because of social distancing and $300 million for testing its workforce for the virus.
Amazon’s stock price has reached record highs this year. After Bezos’ warning, though, which came after the markets closed, its shares fell more than 5%.
Recent months have been one of the most tumultuous periods in Amazon’s history. In March, it became overwhelmed by the surge in orders as millions of Americans heeded public health mandates to stay home. For the holiday season or its summer
Prime Day special, the company spends months planning, but “the
COVID crisis allowed no such preparation,” Brian Olsavsky, the company’s finance chief, said in a call with Wall Street analysts.
The number of products that Amazon shipped rose 32% in the latest quarter. A year earlier, the increase was just 10%.
Amazon took the unusual step of suppressing demand. And it has been battling the spread of the virus among its warehouse employees, who have been pressuring the company to provide more leave and safety precautions.
On a call with reporters, the company declined to say how many of its workers had tested positive for the virus.
Amazon’s grocery business got a major boost, with sales up 8% in its physical stores, which are mostly Whole Foods locations. They had largely been flat for at least a year.
While Americans had been slow to adopt online grocery shopping, the pandemic created the shove that many needed to change behavior, at least temporarily. Olsavsky said the company had increased grocery delivery capacity more than 60% in the quarter and still could not meet demand. The company has set up a waiting list for new customers.
Analysts had expected profits to shrink slightly. Amazon has hired more people to work in its warehouses and raised wages $2 an hour, with additional increases for overtime. The company hired about 80,000 warehouse workers in March and 95,000 more in April. Some of those new hires were filling in for employees who stayed home because of the pandemic.
Also, the mix of what customers are buying has shifted to less profitable types of products. Normally, more than a third of surveyed Amazon customers say they bought clothing on the site in the previous month, but that fell to 27% in March, according to investment bank Cowen & Co. Usually, a quarter of shoppers had recently bought consumable products like toilet paper on Amazon, but in March that jumped to 33%, the bank said.
“No one likes to sell essentials because that’s a lower-margin business,” said Ron Josey, an analyst with investment bank
JMP Securities.
Amazon’s cloud computing business grew 33%, to $10.2 billion in sales, just shy of what analysts expected. There has been demand for streaming products, like gaming, that are built on Amazon’s cloud infrastructure, Olsavsky said, but “hospitality and travel have contracted very severely, very quickly.”