Amazon.com Inc delivered a disappointing quarter and outlook on Thursday as the e-commerce giant was swamped by higher costs to run its warehouses and deliver packages to customers.
Shares fell 12 percent in after-hours trade.
After a long-running surge in sales during the COVID-19 pandemic, Amazon is facing a litany of challenges. The company's expenses swelled as it offered higher pay to attract workers. A fulfillment center in New York City voted to create Amazon's first U.S. union, a result the retailer is contesting. And higher fuel prices are beginning to eat into consumers' disposable income while making delivery more expensive for Amazon, the world's biggest online retailer.
Amazon's forecast shows hiking the price of its fast-shipping club Prime last quarter may not be enough to prop up its profit. The company expects to lose as much as $1 billion in operating income this quarter, or make as much as $3 billion. That's down from an operating income of $7.7 billion in the same period last year.
"This was a tough quarter for Amazon with trends across every key area of the business heading in the wrong direction and a weak outlook for Q2," said Insider Intelligence principal analyst Andrew Lipsman.
Still, there were bright spots, like Amazon Web Services, the division that new CEO Andy Jassy ran before taking the company's top job last year. The unit increased revenue 37 percent to $18.4 billion, slightly ahead of analysts' estimates.
Jassy said the company has finally met its warehouse staffing and capacity needs, but it still has work to do in improving productivity.
"This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020," he said in a press release.
INFLATION HITS AMAZON
Net sales were $116.4 billion in the first quarter, compared to analysts' expectations of $116.3 billion, according to IBES data from Refinitiv.
Amazon lost $3.8 billion, or $7.56 per share, compared with a profit of $8.1 billion, or $15.79 per share, a year earlier. The drop also reflected the declining value of Amazon's investment in the automaker Rivian.
In North America, the company's largest market, sales rose 8 percent while operating expenses soared 16 percent to $71 billion, resulting in an operating loss of $1.6 billion for the unit in the quarter. The declining value of Amazon's investment in the automaker Rivian further deepened the retailer's net loss for the quarter.
Chief Financial Officer Brian Olsavsky told reporters that the company faced about $6 billion in greater costs during the first quarter from a year earlier, including $2 billion from inflationary pressures. These ranged from higher wages - though the company has largely pulled back on its signing bonuses - to fuel costing 1.5 times what it did a year ago. Russia's invasion of Ukraine has contributed to higher prices, Olsavsky told analysts.
Even shipping an overseas container has more than doubled in cost since before the pandemic, he said.
Amazon is aiming to optimize transfers between warehouses to rein in expenses. It also is in the unusual position of having excess warehouse and transportation capacity - costing it about $2 billion in the first quarter. The company hopes to grow into this extra space in the coming months.
In retail, the e-commerce giant has had mixed results turning to brick-and-mortar stores to power food delivery and meet consumers wherever they wished to shop. Amazon said in March it planned to close all 68 of its bookstores, pop-ups and other home goods shops, as it focuses on grocery stores. It recently automated two Whole Foods Market locations to make them cashierless. The company's physical store sales grew 17 percent to $4.6 billion.
Still, Amazon's outlook reflects broader industry challenges. Just this week, a major Amazon delivery partner, United Parcel Service Inc, said it expected e-commerce delivery growth to slow.
Amazon projected net sales of between $116 billion and $121 billion for the second quarter. Analysts were expecting $125.48 billion, according to IBES data from Refinitiv.