Amazon delivered a disappointing quarter and outlook on April 28 as the e-commerce giant was swamped by higher costs to run its warehouses and deliver packages to customers. Shares fell 10% in after-hours trade.
After a long-running surge in sales during the COVID-19 pandemic, Amazon’s outlook has dimmed. The company’s expenses swelled as it offered higher pay to attract workers during a labor shortage, and even then it could not fully staff warehouses. A fulfillment centre in New York City voted to create Amazon’s first U.S. union, a result the retailer is contesting. And higher fuel prices are eating into consumers’ disposable income while making delivery more expensive for Amazon.
The Seattle-based company parried by raising fees. Partway through the just-ended first quarter, Amazon hiked the price of its fast-shipping club Prime, which has garnered more than 200 million subscribers, by 17% to US$139 annually in the United States. Effective April 28, it is imposing an average 5% fuel and inflation surcharge on merchants that use Amazon’s U.S. warehousing services as well.
Amazon’s forecast shows these actions may not be enough to counter such challenges. The company expects to lose as much as US$1 billion in operating income this quarter, or make as much as US$3 billion. That’s down from an operating profit of US$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.
Andy Jassy, Amazon’s chief executive, 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.
In North America, the company’s largest market, sales rose 8% while operating expenses soared 16% to US$71 billion, resulting in an operating loss of US$1.6 billion for the unit in the quarter.
The division that Jassy ran before becoming CEO last year, Amazon Web Services (AWS), has traditionally been a bright spot for the company. The unit increased revenue 37% to US$18.4 billion, slightly ahead of analysts’ estimates.
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 cashier-less. The company’s physical store sales grew 17% to US$4.6 billion.
Still, Amazon’s outlook reflects broader industry challenges. U.S. government data shows that online retail sales fell 6.4% in March after declining 3.5% the month prior, the first back-to-back drop since the last two months of 2020. Some economists attributed the change to household budgets strained from higher gasoline prices, while others blamed shifting seasonal patterns. Just this week, a major Amazon delivery partner, United Parcel Service Inc, said it expected e-commerce delivery growth to slow.
The world’s biggest online retailer projected net sales of between US$116 billion and US$121 billion for the second quarter. Analysts were expecting US$125.48 billion, according to IBES data from Refinitiv.