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Amazon Crushes Expectations in 'Highly Unusual' Q2

Online grocery sales triple as company adjusts to higher deamnd
Photograph courtesy of Amazon

Online grocery sales tripled and overall profits doubled as Amazon far exceeded financial expectations in its fiscal second quarter.

The Seattle tech giant had warned investors in a review of its first-quarter earnings that it would spend heavily in the second quarter to mitigate impacts to its business of the coronavirus, which tangled up its delivery efforts and triggered operational resets and a pullback in fulfillment of nonessential items from its facilities while the outbreak sparked heavy demand for grocery. Officials said this week the company spent more than $4 billion in COVID-related costs during the period, describing a “highly unusual” quarter during which it entered a kind of new normal, overcoming many of the near-term snarls of the pandemic and settling into a period of elevated demand in all categories.

Overall net sales increased 40% to $88.9 billion in the quarter. Operating income increased to $5.8 billion, and net income increased to $5.2 billion or $10.30 per diluted share, walloping analyst estimates of $1.46.

“This was another highly unusual quarter, and I couldn’t be more proud of and grateful to our employees around the globe,” Jeff Bezos, Amazon founder and CEO, said in a statement. Bezos said the company’s $4 billion in incremental COVID expenses included purchasing personal protective equipment, increasing cleaning of facilities, following new safety process paths, adding new backup family care benefits and paying bonuses of more than $500 million to front-line employees and delivery partners.

“We’ve created over 175,000 new jobs since March and are in the process of bringing 125,000 of these employees into regular, full-time positions,” Bezos added.

E-commerce demand that began in early March remained elevated throughout the quarter, which ended June 30, officials said. Strong early demand in groceries and consumable products continued, while demand increased during the quarter in other major product categories such as hardlines and softlines, improving the margin mix, Chief Financial Officer Brian Ostrovsky said during a conference call. He said the company’s Prime loyalty members led the way with more frequent orders and higher average baskets.

“On the product side, a lot of what we saw in March and early April was sales of consumables and groceries and safety items. And we talked a lot about the fact that that was coming at pretty much … zero profit when you factored in the COVID-related costs. We've got better on our cost structure, and we also resumed a more normal mix in [the] early part of May. So since then, I would say it’s getting closer to what we call a more normal mix. Demand is still super high.”

The company does not specify a sales figure for grocery, but that total includes orders fulfilled through its Whole Foods Market stores. In the quarter, Amazon tripled the number of those units offering grocery pickup. U.S. sales of $55.4 billion increased by 43.2%. Whole Foods comprises the majority of Amazon’s “physical stores” unit, which saw a 13% decrease in sales to $3.77 billion. That total does not include online orders fulfilled through those stores.

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