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UPDATE: Amazon Boosts Profitability in First Quarter

26 Apr, 2001 By: Joan Villa

Amazon.com increased revenue a lackluster 2% in the firstquarter for its core books, music and video group, but managed to boost profitability a hefty 30% primarily by controlling inventory and successfully matching supply with customer demand.

The emphasis on profitability over sales is a major shift in the e-tailer’s strategy, as c.e.o. Jeff Bezos has been promising a company-wide pro forma profit by year-end.Moving toward that goal, Amazon is streamlining fulfillment and relyingmore heavily on “electronic data interchange” with suppliers to make for more efficient product ordering, a spokesperson says. In the first quarter ended March 31, those changes reduced the retailer’s fulfillmentcosts to 14% of net sales versus 17% in the year-agoperiod.

In a conference call this week, c.f.o. Warren Jenson said Amazon is “very pleased” that the books, music and video segment reported a proforma gain of $27.6 million on net sales of $409.6 million for the quarter.

“We are focused on profitability — that is No. 1,” emphasized Jenson. “While revenues [in books, music and video] grew 2%, our grossprofit was up more than 30%, and that’s exactly what we wanted to do.”

Jenson also pointed to the success of a new “marketplace” section thatallows customers to sell used items, including VHS movies and DVDs, to one another while paying a commission to Amazon. Since the section waslaunced in November, “250,000 of our customers have bought something from a single detail page,” he said.

On average, each customer is spending $135 with Amazon — 15% more than a year ago. Orders from repeat customers now represent 78%of the total, up from 76%.

Within Amazon, however, the books, music and video category lagged behind other, more rapidly growing divisions such as international and electronics, tools and kitchen items, which each grew revenue in excessof 55%. Higher consumer electronics sales were credited for a 22% spike in overall first-quarter net sales to $700 million, whichexceeded analysts’ expectations.

The online retailer also narrowed its pro forma net loss to $49 million from $99 million in the year-ago period. However, that’s excluding $114 million in restructuring and other one-time charges from distributioncenter closures and the elimination of 1,300 staff positions in fulfillment and customer service announced in January.

For the full year, Amazon expects growth of 20% to 30% in overall net sales and a cash balance of approximately $900 million by Dec. 31, Jenson reports.

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