Amazon’s forecast for the holiday quarter disappoints as labor and supply issues rise

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Oct. 28 (Reuters) – Amazon.com Inc (AMZN.O) on Thursday reported lower profits expected to continue through the holiday quarter as higher wages to attract workers and other operational disruptions decline the business windfall related to online shopping.

Stocks fell 4% in after-hours trading.

After a year of successful results, the world’s largest online retailer faces a tougher outlook. In a tight labor market, he has raised the average US warehouse wage to $ 18 an hour and marketed ever-increasing signing bonuses to attract the blue-collar workers he needs to keep his business running at high rates. rotation.

The company faces challenges in the global supply chain. It doubled its container handling capacity, expanded its delivery partner program and increased its warehouse investments, all at a significant cost.

The company said it expects operating profit for the current quarter to be between $ 0 billion and $ 3.0 billion, below the $ 6.9 billion reported by Amazon in the year. former. In the just-ended third quarter, net income fell about 50% to $ 3.16 billion, a first since the start of the coronavirus pandemic in the United States.

Andy Jassy, ​​who became CEO in July, said in a statement that Amazon is facing higher shipping costs, rising wages and a labor shortage. These labor issues, along with lost productivity and cost inflation, added $ 2 billion to Amazon spending in the quarter, an amount that is expected to double during the holiday season.

Amazon “is doing everything in its power to minimize the impact on customers and business partners this holiday season,” he said. “It will be expensive for us in the short term, but it is the right priority for our customers and partners.”

The retailer has gone to great lengths to avoid a repeat of the 2013 season when delays left some without gifts on Christmas Day.

Amazon’s struggle to staff its warehouses poses a challenge for its rivals this holiday season. Retailers have already struggled to stock their shelves with popular toys, gadgets and sneakers.

Supply chain problems are also costing Apple Inc (AAPL.O) – $ 6 billion in sales in the company’s fiscal fourth quarter, according to results released Thursday. Apple CEO Tim Cook said the impact would be even worse during the holiday sales quarter. Read more

Michael Pachter, analyst at Wedbush Securities, said Amazon’s supply chain challenge surprised him as he believed the company had many products on its shelves to swap for those stuck on container ships.

“I thought they would be fine because of the selection,” he said. “Apparently that’s not true.”

The Amazon logo is seen outside its JFK8 fulfillment center in Staten Island, New York, United States, November 25, 2020. REUTERS / Brendan McDermid

LABOR SHORTAGE

Some analysts like Nicholas Hyett of Hargreaves Lansdown have given Amazon a pass. They say the company’s track record of spending high to deliver to customers has paid off in the long run.

“Amazon has never been too focused on results,” Hyett said.

Still, Amazon CFO Brian Olsavsky said on a call with analysts that some costs were there to tell. As the price of steel needed to build warehouses rose and the company would look to purchase such items more cheaply in the future, he said Amazon’s base salary increases could be permanent.

He told reporters that Amazon faced inconsistent staffing levels and workers, not physical space, became its main capacity constraint in the third quarter. He wants to hire an additional 150,000 workers to meet US seasonal demand on this holiday.

This constraint had a ripple effect.

“Inventory placement is frequently redirected to distribution centers that have manpower to receive this product, resulting in less optimal placement, leading to longer and more expensive transportation routes,” said he declared.

The staff also insist on more. About 2,000 New York City workers this week called for a vote on whether to make their warehouse the company’s first unionized facility in the United States.

Olsavsky said Amazon has no announcement about whether to charge more for its Prime loyalty club memberships, but added that the company is still considering this option.

To increase revenue, the company began encouraging customers to purchase vacation deals as early as October 4 this year. Consumers have started to return to pre-pandemic purchasing levels, spending more on travel and services, Olsavsky said.

The company expects fourth-quarter sales to be between $ 130 billion and $ 140 billion. Analysts were expecting $ 142.05 billion, according to IBES data from Refinitiv. It also fell short of expectations for third-quarter sales, testifying to its slowest growth since the COVID-19 outbreak.

Amazon’s cloud computing division was a silver lining. Olsavsky said revenue growth accelerated again for the company and the company exceeded analysts’ expectations with net sales of $ 16.1 billion in the quarter. Amazon Web Services has seen sales increase with the demand for games and remote work during the pandemic.

Amazon’s total net sales reached $ 110.8 billion in the third quarter; analysts had predicted $ 111.6 billion.

Reporting by Nivedita Balu in Bengaluru and Jeffrey Dastin in Palo Alto, California; Editing by Arun Koyyur, Daniel Wallis and Grant McCool

Our Standards: The Thomson Reuters Trust Principles.


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