Amazon sales growth slows in tame start to Jassy's tenure as CEO

(Reuters) -Amazon.com Inc on Thursday said sales growth would decelerate in the third quarter as customers leave their homes more, a slow start to the reign of CEO Andy Jassy after 27 years with Jeff Bezos at the retailer’s helm.

FILE PHOTO: The logo of Amazon is seen at the company logistics centre in Boves, France, August 8, 2018. REUTERS/Pascal Rossignol/File Photo

Shares fell 7% in after-hours trade.

A year into the throes of the COVID-19 pandemic, Amazon’s financial luster is fading slightly. When brick-and-mortar stores closed, Amazon posted record profits, drew more than 200 million Prime loyalty subscribers, and recruited over 500,000 workers to keep up with surging demand.

Now, the company is facing the tough task of climbing higher still. While revenue grew 44% in the first quarter of this year, that figure dropped to 27% for the period ended June 30. Sales may only grow as much as 16% in the third quarter, Amazon said.

Brian Olsavsky, Amazon’s chief financial officer, attributed this to a difficult comparison to last year, when consumers stayed more indoors and relied on e-commerce for their everyday needs. In the United States and Europe, customers are now out and about.

They are “doing other things besides shopping,” he said.

Amazon expects this lower growth to continue for the next few quarters, Olsavsky told reporters.

The outlook comes just after Jassy inherited Amazon’s top job on July 5, which has never been bigger or more complex. Last quarter Amazon announced a deal to buy the film studio MGM for $8.5 billion, expanding in Hollywood at the same time as it is running a grocery chain, building a healthcare business and facing scrutiny from regulators worldwide.

Olsavsky said the company hopes COVID-19 will subside and that the economy will continue to bounce back, but it will require masks for vaccinated staff if that becomes necessary.

While other tech companies this week such as Alphabet Inc and Facebook Inc announced they will require vaccines for workers returning to their offices, Amazon has yet to announce a vaccine requirement for employees in its offices — or warehouse workers and drivers.

Amazon has grappled with workplace tumult in recent months, including staff protests over pandemic safety precautions and a high-profile, failed unionization bid in a facility in Bessemer, Alabama.

Brian Yarbrough, an analyst with Edward Jones, said it was “not feasible” for Amazon to maintain its growth.

“No doubt, online retail will probably slow down to that growth somewhere in the 10%-12% range. It’s still phenomenal growth when you think of the sheer size of the business,” he said. “Obviously the pandemic helped them, but they’re not going to be able to grow that rapidly on top of those numbers.”

LABOR SHORTAGE

Revenue was $113 billion for the second quarter, shy of analysts’ average estimate of $115 billion.

The world’s biggest online retailer had moved its annual marketing blitz, Prime Day, to June this year, hoping to peddle more goods before shoppers left town on summer vacations. While it said the event was the biggest two-day sales period ever for merchants on its platform, analysts have witnessed signs of slowing demand.

North America, Amazon’s largest market, saw sales increase only 22% in the second quarter, versus 43% in the same period a year earlier.

Amazon Web Services was a bright spot, however. The cloud computing division that Jassy formerly ran grew revenue 37% to $14.8 billion, ahead of estimates of more than $14.1 billion. Among the deals it inked in the just-ended quarter was an agreement with Canada’s BMO Financial Group.

Profit rose 48% to $7.8 billion, the second-largest quarterly result Amazon ever announced.

Still, enormous challenges come with Amazon’s size.

Costs continue to rise, not just from the $200 million in extra stock Amazon plans to pay Jassy over the next 10 years. The company has offered an average $17 in hourly wages – more than double the U.S. minimum – plus signing bonuses to attract 75,000 workers during a labor shortage.

It has said it planned to hike pay for over half a million employees, costing more than $1 billion, and like other companies, it is facing clogged ports and other disruptions to the transportation supply chain.

The No.2 U.S. employer this winter became a rallying point for organized labor, which wanted to form Amazon’s first U.S. union and inspire similar efforts across the country. Amazon is awaiting a decision on whether a U.S. National Labor Board director will overturn its landslide victory in the Bessemer, Alabama union election and call for a rerun.

Following the April vote count, Bezos said he aimed to make Amazon a better place to work. It is unclear how he will govern from the sidelines in the role of executive chair of Amazon’s board.

Amazon said it expects operating income for the current quarter to be between $2.5 billion and $6.0 billion, which assumes $1 billion in costs related to COVID-19.

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