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Amazon's holiday-quarter forecast disappoints as labour, supply issues mount

Amazon's holiday-quarter forecast disappoints as labour, supply issues mount

FILE PHOTO: The Amazon logo is seen outside its JFK8 distribution center in Staten Island, New York, U.S. November 25, 2020. REUTERS/Brendan McDermid

Amazon on Thursday reported a slump in profit that it expects will continue through the holiday quarter, as heavy spending to maintain delivery operations diminishes the company's windfall from online shopping.

Shares fell 4 per cent in after-hours trade.

After a year of blockbuster results, the world's largest online retailer is facing a tougher outlook. In a tight labour market, it has boosted average warehouse pay and marketed ever bigger signing bonuses to attract blue-collar workers it needs to keep its high-turnover operation humming.

The company meanwhile is contending with global supply chain disruptions. It has doubled its container processing ability, expanded its delivery service partner program and is ramping up its warehouse investments - all at a noteworthy cost.

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

Andy Jassy, who took the helm of Amazon as CEO in July, said in a statement the company would incur several billion dollars of extra expenses in its consumer business to deal with higher shipping costs, increased wages and labor shortages.

Amazon is "doing whatever it takes to minimise the impact on customers and selling partners this holiday season," he said. "It’ll be expensive for us in the short term, but it’s the right prioritisation for our customers and partners."

The retailer has strived to prevent a repeat of the 2013 season when delays left some without presents on Christmas Day.

Retailers are facing supply constraints on everything from toys and Nike sneakers to laptops, making it difficult for them to stock up their shelves.

Supply chain woes are also costing Apple - US$6 billion in sales during the company's fiscal fourth quarter according to results released on Thursday. Apple Chief Executive Tim Cook said that the impact will be even worse during the holiday sales quarter.

LABOuR SHORTAGE

Amazon CFO Brian Olsavsky said on a call with reporters that the labour shortage had contributed to inconsistent staffing levels.

Workers - not physical space - became its primary capacity constraint in the third quarter, Olsavsky said. And that has had a ripple effect.

“Inventory placement is frequently redirected to fulfilment centres that have labuor to receive this product, which results in less optimal placement, which leads to longer and more expensive transportation routes,” he said.

Amazon faced an extra US$2 billion in costs from labour, inflation and operational disruptions, an amount that is supposed to rise to US$4 billion in the current period, Olsavsky said.

Staff are pushing for more, too. Around 2,000 workers in New York City petitioned this week for a vote on whether to make their warehouse the company's first unionised facility in the United States.

To juice sales, the company began encouraging customers to shop holiday deals as early as Oct 4 this year. Still, consumers have begun returning to pre-pandemic shopping levels, spending more on travel and services, Olsavsky said.

The company forecast fourth-quarter sales to be between US$130 billion and US$140 billion. Analysts were expecting US$142.05 billion, according to IBES data from Refinitiv. It missed expectations for third-quarter sales as well, witnessing its slowest growth since the COVID-19 outbreak.

Amazon's cloud computing division was a bright spot. Olsavsky said revenue growth re-accelerated for that business, and the company beat analysts' expectations with net sales of US$16.1 billion in the quarter. Amazon Web Services has seen sales rise with demand for gaming and remote work during the pandemic.

Total net sales rose to US$110.81 billion in the third quarter ended Sep 30, from US$96.15 billion, a year earlier.

Analysts had predicted US$111.60 billion, according to IBES data from Refinitiv.

Source: Reuters

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