Business

Amazon’s construction collides with an increase in inflation


Amazon’s forecasts for the second quarter were also disappointing, with the midpoint of its forecast range being the third straight quarter of single-digit revenue growth.


Photo:

Spencer Platt / Getty Images

Amazon.

AMZN 4.65%

com has a tough summer ahead. Or at least a very busy one.

E-commerce giant first quarter results Thursday afternoon clearly showed the multifaceted impact of rising costs and slowing demand in an inflationary environment. Total revenue of $116.4 billion grew just 7% year over year – the company’s slowest growth in at least 12 years. The figure was in line with Wall Street estimates, but operating income of about $3.7 billion was 31 percent below analysts’ target.

Amazon’s forecasts for the second quarter were also disappointing, with the midpoint of the company’s forecast range being a third straight quarter of single-digit revenue growth and operating income at a near five-year low. . Amazon’s stock price fell nearly 10% in after-hours trading — setting up what could be the stock’s worst single-day drop since 2014.

The line between Amazon and Walmart is becoming increasingly blurred, as the two companies seek to maintain their estimated $5 trillion retail market share while slashing each other’s share, often by Borrowing ideas from others. Photo: Amazon / Walmart

No one expected an impressive quarter. Rising inflation and fuel costs create a dire operating environment for a company that operates a fleet of planes and delivery trucks, which now employ more than 1.6 million full-time workers. The fuel costs alone are substantial; According to GasBuddy data, the price of diesel fuel in the US increased by 43% in the first quarter. Earlier this month, Amazon announced a 5% fuel surcharge added to the per-unit fee for sellers using the company’s fulfillment network. But that wouldn’t include items that Amazon sells itself through its online store segment, which still makes up nearly half of the company’s total revenue.

Fuel prices are even beyond Amazon’s control. But the company has other areas where it can improve. The rapid construction of fulfillment centers and other delivery infrastructure that began early in the pandemic has led to an oversupply of warehouse space, which chief financial officer Brian Olsavsky said has added about $2 billion in “increased costs” for the quarter. On a call Thursday, Mr Olsavsky said Amazon would work to eliminate inefficiencies over the next two quarters, though he added that it would be “mostly Q4” when the company would see gains. useful.

That means Amazon has at least another tough quarter ahead of it – especially since the company noted on Thursday that its annual Prime Day sale event won’t happen until the third quarter. this year. Amazon’s forecasts are generally conservative, and the stock is currently at its lowest price in nearly two years. The AWS cloud business is also doing very well, with revenue up 37% year over year and a record high operating margin of 35% in the first quarter. But while the cloud supports Amazon’s bottom line, much of the electronics giant’s business still relies on keeping its trucks running. And that is becoming ever more costly.

Write letter for Dan Gallagher at dan.gallagher@wsj.com

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