Amazon Offers Weaker-Than-Expected Outlook

Following a weaker holiday sales forecast compared with other years as consumers try to save money, e-retailing giant Amazon is also taking actions to tighten its belt during these uncertain economic times.

“We aim to strike the right balance between investing for our customers for the long-term while driving operational efficiency improvements and accomplishing more with less,” noted Brian Olsavsky, Amazon’s SVP and CFO, during a financial call detailing the company's third quarter, ended Sept. 30.

Amazon CEO Andy Jassy said that the company is encouraged by the steady progress it's making on lowering costs in its stores' fulfillment network. He also mentioned a set of initiatives that Amazon is methodically working through to yield a stronger cost structure for the business moving forward.

As its third quarter progressed, Amazon saw moderating sales growth across many of its businesses. The retailer expects these impacts to persist throughout the fourth quarter as various factors weigh on people's wallets.

“But we know the consumers when they're looking for good deals, and that positions us well,” said Olsavsky.

In the third quarter, Amazon saw net income decrease to $2.9 billion, or 28 cents per diluted share, compared with $3.2 billion, or 31 cents per diluted share, in third quarter 2021.

Net sales increased 15% to $127.1 billion in the third quarter, compared with $110.8 billion in third quarter 2021. North America segment sales increased 20% year over year to $78.8 billion.

Operating income decreased to $2.5 billion in the third quarter, compared with last year's $4.9 billion. The North America segment operating loss was $0.4 billion, compared with last year's operating income of $0.9 billion.

Operating cash flow dropped 27% to $39.7 billion for the trailing 12 months, compared with last year's $54.7 billion.

When faced with an uncertain economy, Amazon said that customers tend to double down on companies that they believe have the best customer experience and that take care of them the best. “And that is where our efforts remain focused,” Olsavsky said. 

Some of the customer experience improvements that Amazon recently made include introducing the first-ever Prime Early Access Sale, opening a dozen new fulfillment centers to serve more customers more quickly, continuing to work on protecting customers from fake reviews through legal action against fake-review brokers, and rolling out Venmo as a new payment option, giving customers more choice during the checkout experience.

Amazon has  also improved customer experience at the retail level. During the third quarter, the company continued to collaborate with retailers and stadiums to equip their locations with Just Walk Out technology for checkout-free shopping and Amazon One for palm recognition and payment. These technologies are available in such places as Lumen Field, in Seattle and a Hudson Nonstop at Dallas Fort Worth International Airport. Amazon also continued to roll out Amazon One at Whole Foods Market stores, with the technology now available at more than 65 stores in California.

Looking ahead, Amazon stressed that its financial guidance could be affected by many factors, among them uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates; changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears; inflation; interest rates; regional labor market and global supply chain constraints; world events; online commerce; and cloud services.

For its fourth quarter 2022 guidance, Amazon expects net sales between $140.0 billion and $148.0 billion, or growth between 2% and 8% compared with fourth quarter 2021. This guidance anticipates an unfavorable impact of approximately 460 basis points from foreign exchange rates.

Operating income is expected to be between $0 and $4.0 billion, compared with $3.5 billion in fourth quarter 2021.

“There is obviously a lot happening in the macroeconomic environment, and we'll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” said Jassy. “What won't change is our maniacal focus on the customer experience, and we feel confident that we're ready to deliver a great experience for customers this holiday shopping season.”

Seattle-based Amazon is No. 2 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.