Sells More, Spends Less Tuesday reported it’s losing less money while saving more.

The Seattle-based Internet retailer, which has moved from bookselling to a soup-to-nuts approach with wares that include everything from garden tools to magazine subscriptions, said its net sales for the second quarter of this year were $1.1 billion, compared with $806 million in the same quarter last year, up 37 percent.

During its earnings report for the second quarter, the company reported operating cash flow of $285 million for the preceding twelve months, a nice bump from the $48 million for the twelve months ending June 30, 2002. It also lost less: Net loss was $43 million, compared with $94 million in Q2 2002. Pro forma net income in the second quarter, which includes interest expense, grew to $42 million, compared with a pro forma net loss of $4 million in the second quarter 2002.

In a conference call with financial analysts, CFO Tom Szkutak said the company was advertising less and passing the savings along to customers by lowering prices and expanding free shipping offers.

For example, the company took pre-orders for the blockbuster fifth Harry Potter book, and sold 1.4 million copies worldwide at 45 percent off the list price.

HP5 buyers could also get guaranteed Saturday delivery for the regular shipping price. saved money by using special boxes that were less expensive and an automated packing system. Szkutak said the company ended up delivering HP5 around the world at cost and looked at the book promotion as a customer acquisition vehicle.

Founder and CEO Jeff Bezos said he was especially happy about the acceleration in unit sales of electronics and general merchandise.

“It takes time to educate customers about new offerings,” he said. “At a certain point, you reach critical mass, where it starts to build on itself.” Bezos said that while he couldn’t say whether his customer base had reached that critical mass, “We like the progress we’ve seen.” The company will continue to add more kinds of merchandise, new international stores and new technology. also beat and raised revenue estimates, a sign that was lauded by analysts on the call. Most started their questions with, “Great quarter, guys.” Of course, still seem to be losing real money in the end, but hey, who’s counting?

The company is now preparing an improved payment system designed to help keep the heat on online auction site eBay and its online payment service PayPal. Amazon says its new payment system will allow visitors to a partner’s e-commerce site to use their Amazon account to pay you for any product or service.

The service will also be able to offer subscriptions and controlled access to content. Businesses will be able to verify the status of any transaction to make sure that the user has not rescinded it. Amazon said it is providing a base-level API to partnering companies, which will lie just underneath the business logic layer.

The beta version is expected in the next month or so.

Editor’s note: editors Paul Shread and Ryan Naraine contributed to this report.

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