1,300 Layoffs at Amazon

E-tailing giant Amazon.com, reporting after the bell on a reduced pro forma net loss of 25 cents a share for the fourth quarter, said it will cut 1,300 jobs — about 15 percent of its workforce — and take a charge of $150 million in the first half of 2001.

Amazon said its pro forma net loss was $90.4 million, or 25 cents a share for the quarter ending Dec. 31, compared with a loss of $184.9 million, or 55 cents, a year earlier.

The company said it will cut corporate staff and consolidate its distribution and customer service center network, closing a distribution center in McDonough, GA and a customer service center in Seattle.

According to Suresh Kotha, Associate Professor of Management and Organization at the University of Washington Business School, the decision makes sounds financial sense.

“They have reacted very fast to the slowing economy, and that’s a good thing,” says Kotha, who has also conducted academic research on the giant e-tailer. “They are (also) focusing on the cost side of the equation by cutting down people in the distribution centers.”

According to Kotha, the distribution centers were running at a low capacity, a number that he estimates to be around 30%.

“Hopefully this cost cutting will force them to reexamine their operating efficiency, and better utilize their distribution and customer service centers,” says the Professor.

While Amazon said it expects pro forma operating profitability in the fourth quarter of this year, Kotha says that the negative effects should not be overlooked.

Among the major negative results, Kotha notes employee moral, citing not only the layoffs, but also the low-value stock options that have been seen across the dot-com world.

“How do you retain an employee when the upside of the stock option is not that great at this point in time and the salaries are not commensurate with what the industry pays for retailing?”

Net sales for the fourth quarter of 2000 were $972 million, an increase of 44 percent over net sales of $676 million in the fourth quarter of 1999.

For the year ended Dec. 31, 2000, net sales were $2.76 billion, a 68 percent increase over 1999 net sales of $1.64 billion. Pro forma net loss for the year was $ 417.1 million, or $1.19 per share, compared to a 1999 loss of $ 389.8 million, also at $1.19 per share.

Amazon stock ended Tuesday by heading south fast, closing at $18.93, down $1.18, as investors braced for its earnings report. Its 52-week high is $91.50; the low is $13.56.

Speculation during the day had hinted at possible layoffs and reduced financial guidance for the upcoming quarters. Analysts had expected a loss of 26 cents a share, according to the consensus estimate compiled by First Call/Thomson Financial.

“Over the past year, our U.S. pro forma operating loss decreased from 24 percent of net sales in the fourth quarter of 1999 to less than 2 percent in the fourth quarter of 2000,” said Warren Jenson, Amazon.com chief financial officer. “While the strength of consumer spending remains uncertain, and there are no guarantees, we expect Amazon.com as a whole to reach operating profitability in the fourth quarter of this year.”

Overall, Amazon’s pro forma operating loss for the fourth quarter of 2000 was $60 million, or 6 percent of net sales, compared to a pro forma operating loss of $175 million, or 26 percent of net sales, in the fourth quarter of 1999.

For those being laid off, amazon said that in addition to a standard severance package, the company has established a trust fund of Amazon.com stock to be distributed to affected employees in 2003.

For the first quarter of this year, Amazon said it expects:

* Net sales growth of between $650 million and $700 million.

* Gross margin is expected to be between 21 percent and 23 percent of net sales.

* Pro forma operating losses are expected to decrease year over year to between

10 percent and 13 percent of net sales.

For all of 2001, the company said it expects:

* Net sales are expected to increase between 20 percent and 30 percent over 2000.

* Pro forma operating losses are expected to be between 4 percent and 7 percent of net sales for the year, with pro forma operating profitability expected in the fourth quarter.

* Cash and marketable securities are expected to be over $900 million as of Dec. 31, 2001

Goldman, Sachs analysts, in a memo to clients before the earnings release, said that despite the stock appreciating substantially since early January, “we continue to recommend that investors that have at least a 12-month time horizon buy the stock.”

*Beth Cox is e-commerce correspondent for InternetNews.com, a property of Internet.com.

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