Amazon’s Earnings Sink 30% Despite Sales Growth

Amazon.com Inc. said Tuesday that its first-quarter net income fell 30% -- despite rising sales -- as heavy discounts, expensive promotions and a tax-related charge chipped away at the company’s profitability.

The world’s largest online retailer reported net income of $78 million, or 18 cents a share, compared with $111 million, or 26 cents, a year before. Revenue jumped 24%, to $1.9 billion from $1.53 billion.

Amazon raised its full-year sales forecast slightly, but said its second-quarter operating profit might drop as much as 42% from a year earlier.

Amazon’s stock has slumped since late 2003 as the company’s growth has slowed. Its shares fell 82 cents to $32.71 on Nasdaq on Tuesday, hitting a nearly two-year low, then dropped 3.5% to $31.55 in after-hours trading. The company released its results after regular trading ended.

Some investors are unhappy with Amazon’s strategy for building its business by spending heavily on technology, discounting and free shipping.

“Fundamental trends continue to get weaker,” said Mark Mahaney, an analyst with American Technology Research. “Revenue growth decelerated and margins declined.”

Amazon executives, however, said Tuesday that they would stick to their guns. The retailer, for example, is hiring engineers to improve online shopping through such products as Amazon’s A9.com search engine, which the company hopes will help it compete with Google Inc., Yahoo Inc. and others.

Amazon saw a spike in its shipping costs because of a new program, Amazon Prime, that gives customers unlimited two-day shipping for $79 a year. Chief Executive Jeff Bezos said the program, which began in February, “is off to a good start,” and has appealed most to buyers of electronics, tools, kitchen supplies and health products.

“Getting your items right away changes the way you use and think about Amazon,” he said.

Amazon said net income was hurt by a $56-million expense for income taxes, a $58-million swing from the $2-million tax benefit it enjoyed in the first quarter of 2004. But an accounting change regarding employee stock options boosted net income by $26 million.

Separately, Amazon said Tuesday that it had struck a deal to sell thousands of items from Macy’s, owned by Federated Department Stores Inc., including brands exclusive to Macy’s.

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Reuters was used in compiling this report.