Amazon Pushes Its Sales Up 28%
After its second profitable holiday season, online retailer Amazon.com Inc. returned to red ink in the first quarter, despite a 28% jump in sales driven by a free-shipping promotion.
The Seattle-based company Thursday posted a $10.1 million loss, or 3 cents a share, on sales of $1.08 billion. The results, which surpassed analyst projections, were better than those in the same period last year, when the company lost $23.2 million on $847.4 million in sales.
Amazon’s shares lost 31 cents to $25.12 in regular Nasdaq trading before the earnings were released, but climbed as high as $28.73 on the news in after-hours trading.
“They just keep putting together solid quarters where they beat expectations,” said Dan Geiman, equity analyst with Seattle-based broker McAdams Wright Ragen, which does not conduct business with Amazon or own the company’s shares.
Of the 28% increase in sales, about six percentage points were due to favorable foreign exchange rates on overseas sales. Still, analysts applauded the performance, given consumers’ reluctance to spend.
“That’s pretty good growth for them,” Geiman said.
A key sales booster has been Amazon’s offer to forgo shipping charges on orders totaling $25 or more, a promotion the company started in August. It cost the online merchant $27 million in additional shipping costs in the first quarter, up from $1 million a year earlier. Amazon sells books, CDs and other items such as digital music players and kitchen blenders.
Company executives said they will continue the offer indefinitely.
“It’s not going away anytime soon,” Amazon Chief Executive Jeff Bezos said in a conference call with analysts. “In fact, it’s not likely to go away ever.”
Employing another method to goose sales, Amazon continued to aggressively discount its merchandise, often slashing prices by double-digit percentages from suggested retail. That helped drive unit sales up 35%, but profit suffered.
“They’re investing now in their lower prices and free shipping, and it’s affecting their margins and costs,” Geiman said. “But in the long run it should pay off for them.”
Although the Iraq war slowed shopping in the final weeks of March, Amazon’s chief financial officer, Tom Szkutak, said activity on the site has since revived.
Szkutak projected revenue of $1 billion to $1.05 billion in the current quarter, up 24% to 30% from a year ago. For the year, he predicted sales will grow at least 19% to $4.7 billion or more.
