Amazon Posts Net Loss for the Second Straight Quarter as It Manages Slower Demand

Revenue for the tech giant in the latest period increased by around 7% from a year earlier to $121.2 billion, a similar pace to the first quarter, which marked Amazon’s slowest growth in about two decades. Amazon’s loss totaled $2 billion in the quarter, compared with a profit of $7.8 billion a year ago.

Amazon said it expects its operating income for the third quarter to be between $0 and $3.5 billion, compared with $4.9 billion in third quarter 2021. It expects sales between $125 billion and $130 billion. The company’s shares were up roughly 15% in after-hours trading.

“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” said Mr. Jassy in a statement.

Amazon’s core e-commerce business has been struggling with high costs and slowing growth in consumer demand as customers return to in-store shopping. Amazon’s online stores segment, which includes the bulk of its ecommerce operations, experienced a 4% decline in sales for the period. The segment also posted a decline in the first quarter.

During the throes of the pandemic, Amazon notched record sales as its logistics network struggled to keep up with the influx of orders. At the time, the company decided to aggressively build out a network of warehouses, sortation centers and other expensive infrastructure that required significant capital investments. Now, with demand cooling as consumers head back into stores and spend money on travel and other experiences, Amazon has had to pivot.

The pressures on Amazon’s legacy retail-and-logistics sides of the business weighed on earnings in the first quarter, with Amazon posting its first quarterly loss in seven years. The company said that it had committed to too much warehouse space and had too many employees in its warehouses, which the company said would add $10 billion in costs through the second quarter.

The company has worked to more aggressively sublease millions of square feet of excess warehouse space, defer construction of new facilities and find ways to end or renegotiate leases with outside warehouse owners while thinning out its hourly workforce through attrition. In late May, Amazon’s senior logistics and retail leadership team at the time presented a three-year plan to Amazon’s board of directors and Chief Executive Andy Jassy to cut costs and turn the struggling business around, The Wall Street Journal has reported. In the weeks since, the company has been working on that plan.

Other retailers that benefited from pandemic-era shopping are also working through a buildup of inventory as customers spend money in stores and on experience. Last month,

Target Corp.

TGT 3.12%

warned its profit would drop because it needs to cancel orders with vendors and offer discounts to clear out unwanted goods. In addition to a mismatch between supply and demand, retailers such as Amazon are also coping with record inflation that is eating into customers’ discretionary income as they deal with higher costs for everyday goods such as gasoline and groceries.

Although Amazon had what it described as a successful Prime Day, its annual midsummer shopping-and-deals event, some analysts nonetheless expect online shopping sales to slow for the rest of the year based on an expectation of diminished consumer spending. Reduced engagement in social-media websites might hurt Amazon’s cloud business, which has pricing models based on usage, and higher gasoline prices will be among a number of factors that increased costs, according to an MKM Partners research note.

Investors will also likely be interested in Amazon’s investment in electric-vehicle company

Rivian

RIVN 5.73%

Automotive Inc. which has caused some swings in Amazon’s earnings. Last quarter, Amazon suffered a $7.6 billion pretax hit from the Rivian investment. The prior quarter, Amazon registered a $12 billion gain from the investment in the auto maker, which went public last year.

Despite large headwinds on Amazon’s retail business, Amazon’s cloud-computing and advertising businesses have been reliable growth engines for the company. Amazon Web Services, the largest cloud-computing company by market share, has consistently delivered double-digit sales growth for the company and high margins. Amazon’s advertising business, for which the company recently began breaking out financial data, has also been a steady engine of growth and profit that will help offset some pain points in retail.

Write to Dana Mattioli at [email protected]