Amazon acknowledged that a hiring and warehouse-building binge during the pandemic is catching up with the company as e-commerce sales growth inevitably slows from the torrid pace of the outbreak.
That reality will weigh on revenue and profit going forward as consumers return to their pre-pandemic habits and inflation may cool their spending. Fuel and labor costs are already biting, and executives said Amazon was watching for whether shoppers will trim their purchases to offset rising prices.
The dour results and forecast Thursday sent shares down about 8% during premarket trading on Friday after closing at $2,891.93 in New York. The stock has dropped 13% this year amid a broad decline in the S&P 500.
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Amazon said it lost money during the first quarter and gave a forecast that said it may see another loss in the current period. Sales will be as much as $121 billion in the three months ending in June, missing analysts’ average estimate of $125 billion. It’s an unwelcome development for Chief Executive Officer Andy Jassy, who has inhabited the top job for less than a year and signaled that it would take time for the company to get a handle on economic pressures and an overbuilt logistics network that is hampering Amazon’s productivity.
“Losing money in North America just seems like something investors thought we were beyond,” said Brian Yarbrough, an analyst at Edward Jones. “Amazon needs to prove to investors that as they slow down spending, they can improve profits. Today’s numbers were pretty disappointing.”
Before the earnings report, Wall Street analysts had been almost unanimous in their optimism about Amazon’s prospects, citing the massive investments in package handling and delivery facilities and continued growth in the highly profitable cloud-computing and advertising businesses.
But Chief Financial Officer Brian Olsavsky said the company’s rapid expansion left it with too much warehouse capacity and too many workers, which will take a while to work through.
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Amazon, America’s second-largest private employer, hired roughly 780,000 people over the past two years, bringing its workforce to 1.62 million. It also raised wages, paid out bonuses for new hires and was willing to send out half-empty vans to ensure customers got their packages on time.
The costs piled up, with Amazon reporting $112.7 billion in total operating expenses, including $20.3 billion in fulfillment outlays during the quarter ended March 31. In an attempt to blunt the impact of inflationary pressure, the company on Thursday began levying a first-ever 5% fee on independent sellers who use its shipping services. Prime members in the U.S. will spend $20 more a year for speedy shipping and other benefits such as the company’s streaming service.
Amazon was overstaffed for much of the first quarter, Olsavsky said, which in the company’s warehouses means workers sitting idle or managers asking for volunteers to go home without pay. He resisted the idea that consumers are pulling back from online shopping. Demand “remains strong,” he said in a briefing with reporters. “Customer-facing metrics all look good.”
