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Amazon’s Build-Out collides with rising inflation

Amazon’s second-quarter projections also disappointed, with the midpoint of its forecast range pointing to a third consecutive quarter of single-digit revenue growth.


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Spencer Platt / Getty Images

Amazon.

AMZN 4.65%

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

The e-commerce giant’s results for the first quarter on Thursday afternoon markedly show the multi-stranded effect of rising costs and declining demand in an inflationary environment. Total sales of $ 116.4 billion increased by only 7% year-over-year – the company’s slowest growth rate in at least 12 years. That was in line with Wall Street’s estimates, but operating revenues of about $ 3.7 billion were 31% below analysts’ targets.

Amazon’s second-quarter projections also disappointed, with the midpoint of the company’s forecast range pointing to a third consecutive quarter with single-digit revenue growth and operating revenues at a near-five-year low. Amazon’s share price fell nearly 10% in after-hours trading – setting up what could be the stock’s worst fall in a single day since 2014.

The boundary between Amazon and Walmart is becoming more and more blurred as the two companies seek to maintain their share of the estimated $ 5 trillion retail market while cutting the other’s share, often by borrowing the other’s ideas. Photos: Amazon / Walmart

No one expected an impressive quarter. Rising inflation and fuel costs create a poor operating environment for a company that operates fleets of aircraft and vans and now employs more than 1.6 million full-time employees. Fuel costs alone are significant; US diesel prices rose 43% during the first quarter, according to GasBuddy. Earlier this month, Amazon announced that a 5% fuel surcharge was added to the per capita fee rates. device for salespeople using the company’s delivery network. But it will not cover the goods that Amazon itself sells through its online store segment, which is still almost half of the company’s total revenue.

Fuel prices are beyond even Amazon’s control. But the company has other areas where it can make improvements. The rapid expansion of fulfillment centers and other delivery infrastructure that began early in the pandemic has resulted in excess storage space, as CFO Brian Olsavsky says, adding about $ 2 billion in “incremental costs” during the quarter. In a call Thursday, Mr Olsavsky said Amazon will work to eradicate inefficiency over the next two quarters, though he added it would be “mostly Q4” when the company would see the benefits.

This means that Amazon has at least one more hard quarter ahead – especially since the company on Thursday noted that its annual Prime Day sales event will not take place until the third quarter of this year. Amazon’s projections are typically falling on the conservative side, and the stock is now at its lowest price in almost two years. The AWS cloud computing business is also doing very well, with revenue of 37% year over year and record operating margins of 35% in the first quarter. But while the cloud covers Amazon’s bottom line, most of the e-tail giant’s business is still dependent on keeping its trucks running. And it’s getting more expensive than ever.

Write to Dan Gallagher at dan.gallagher@wsj.com

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