Amazon plans on spending enough money on dealing with COVID-19 that it won’t turn an operating profit in the second quarter.
The online retailer and entertainment company laid out its plans to spend $4 billion on COVID-19 measures in the second quarter, with several of the steps supply chain-related.
“Under normal circumstances, in this coming second quarter, we’d expect to make some $4 billion or more in operating profit,” Amazon founder and CEO Jeff Bezos said in a prepared statement disclosing the company’s first quarter earnings. “But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe.”
The financial figure in the Amazon earnings report that has the biggest impact on the supply chain is its figure for worldwide shipping costs. That figure stood at $10.936 billion for the first quarter of 2020, up 49% year-on-year. But it actually fell from the fourth quarter when the figure was $12.88 billion.
Among the numerous COVID-19 related steps in that $4 billion that could potentially have impact on supply chain operations, Amazon said it would do the following:
– It has prioritized stocking and delivery of “essential items to ensure the fastest delivery of household staples, medical supplies and other critical products.”
– The company has added 175,000 workers through April. In the report, Amazon said its full-time and part-time employees stood at 840,000, a jump of 42,000 from the end of the fourth quarter. That suggests that Amazon this month has added a whopping 133,000 employees. However, on the earnings call, management put the split at 80,000 in March and 95,000 in April. Pay for those workers was increased by $2 per hour in the U.S. and Canada, GBP2/hour in the U.K. and Euro2/hour in what is said were “many” European countries.
– Grocery pickup at Whole Foods is available now at 150 stores, up from 80 stores. Whole Foods also has “adjusted” some hours at certain locations to “focus exclusively on fulfilling online grocery orders” at the adjusted times.
– Third-party sellers in Amazon’s stores have been allowed to “pause” Amazon Lending loan repayments. However, that program started March 26 and is ending April 30. Amazon also waived one month of fees for long-term storage at its facilities.
– Amazon is using its Amazon Flex drivers to deliver groceries to food banks. It used that service so far to deliver 427,000 pounds of groceries.
As far as the company’s financial performance, while sales continued to grow, profits did not. Operating income was down to $4 billion from $4.4 billion in the first quarter of 2019. Net income dropped to $2.5 billion compared to $3.6 billion last year. Worldwide net sales were up 26% to $75.5 billion in the quarter, up from $59.7 billion in the first quarter of 2019.
SeekingAlpha reported that the revenue figure was above consensus forecast by $1.41 billion. The GAAP figure on earnings per share of $5.01 was lower than the consensus forecast by $1.10.
The first reaction to the earnings was slightly negative. At approximately 5:45 p.m., Amazon’s stock was down 1.89%, a drop of $44.76.
Amazon backed away from its one-day shipping guarantee for Amazon Prime customers in the chaos of the pandemic. On its earnings call with analysts, Amazon CFO Brian Olsavsky said that step was necessary to prioritize the movement of essential items.
“We had to extend the period and then extend further on non-essential items,” Olsavsky said. He said Amazon also needed to restrict some items coming into warehouses as part of the focus on essential items. “I still think that was the right course of action,” Olsavsky said.
He added that as Amazon has added capacity, the company will try to resume a more normal delivery schedule for essential and non-essential goods.