RealTime IT News

Amazon Price-Cuts to Q1 Profit

Amazon.com put more distance between its red ink days of a year ago on rising sales and an improved profit during its first quarter of 2004.

But its discounting ways pressured its gross profit margins, and kept questions in the air over whether it has a handle on its costs.

The company's profit rose to $111 million in the first quarter (26 cents per share), compared with a net loss of $10 million (3 cents per share), in the first quarter of 2003.

Net sales were $1.53 billion in Q1, compared with $1.08 billion in Q1 2003, an increase of 41 percent.

But, after promising Wall Street that it would spend less to improve its margins, its cost of goods sold grew 69 percent from the previous, record quarter.

After laying off somewhat on advertising, the multi-category retailer increased online advertising to draw in new shoppers and hype its expanding range of products, CEO Jeff Bezos told analysts in a conference call.

On the same day as it released its financial results, the company launched a new jewelry store, after a beta test that drew 100,000 orders. Bezos said in the announcement that the Seattle, Wash.-based company will keep its margins as low as 13 percent on some items, well below the industry standard of 45 to 50 percent, to drive growth.

During the quarter, Amazon.com launched a Home & Garden store in Germany, and DIY and Garden stores in the UK. International sales grew 80 percent, to $684 million, and, for the first time, half of net sales this quarter came from products delivered to customers outside the U.S.

For the next quarter, the company told analyst to expect sales of between $1.34 billion and $1.44 billion, translating to growth of between 22 percent and 31 percent over the second quarter 2003. Net sales for the year are expected to be between $6.45 billion and $6.85 billion, with operating income of $380 million to $460 million.

Bezos reminded analysts that the wildly popular Harry Potter book series had a near-magical effect on the company's bottom line -- but there's no sequel planned. He warned that content and technology expenses would continue to grow. "We continue to focus on the right things," he said. "How do we make improvements in customer experience to drive growth?"