NEW YORK, - Amazon isn’t just addressing pandemic-induced shopping splurges. Amazon, an online retailer giant, is also dealing with rising costs due to its inability to navigate a tight supply chain and labor shortages.
These challenges led to Amazon reporting a Thursday shortfall in third-quarter profits. The company, which is based in Seattle, also reported a lower holiday sales forecast than Wall Street.
These issues are the latest setbacks that Amazon has faced since the outbreak of the COVID-19 pandemic in spring 2020. Amazon was one of few retailers to prosper during the COVID-19 pandemic. As physical stores that sold non-essential goods were temporarily or permanently shuttered, people with limited mobility turned to Amazon to purchase everything from groceries to cleaning products.
For the three months ended September 30, 2016, the company earned $6.2 billion or $6.12 per share. This compares to a profit of $6.3billion, or $12.37 per shares, for the same period last year. The company's fourth consecutive quarter with revenue exceeding $100 billion saw its revenue rise 15% to $110.8 million.
However, analysts surveyed by FactSet expected an average of $111.55 billion in quarterly revenues and $8.90 per-share earnings.
Amazon stated that fourth quarter sales should range between $130 billion to $140 billion. This is a growth rate of between 4% - 12% over fourth quarter 2020. According to FactSet, analysts had expected $142.17 billion.
After-hours trading saw Amazon stock fall by 4%
Amazon incurred almost $1 billion in additional costs related to wage increases and incentives during the third quarter. Amazon stated that its starting wage now exceeds $18 and there are an additional $3 per-hour depending on the shifts at different locations. Signing bonuses can reach up to $3,000.
It also saw rising prices for raw materials, services like steel and third party trucking. Amazon also faced additional $1 billion in costs related to disruption and lost productivity.
Andy Jassy, who was looking back on his first quarter as CEO, stated that "We have always said that we choose between optimizing short-term profits or what's best long term for customers,".
Jassy succeeded Jeff Bezos as founder in July. Bezos now serves as executive chairman.
Products were also redirected to fulfillment centres that had enough staff to receive them due to a labor shortage. This resulted in more costly and longer routes. The company stated that it expected to incur additional $4 billion in costs for the fourth quarter.
Brian Olsavsky (Amazon's chief financial officer), stated that labor was our primary capacity constraint and not storage space or fulfillment capability. He spoke to analysts during a conference call.
Amazon is on an hiring spree. Amazon has hired 628,000 global employees over the last 18 months, and is looking to add more. In September, it announced that it plans to hire 125,000 warehouse and delivery workers. This is in addition to the 150,000 seasonal employees it plans to hire this season.
The National Labor Relations Board declared Monday that there was enough interest to form an union at Amazon Distribution Center in New York. This decision came after hundreds of signatures were submitted by labor organizers. This is a crucial step towards authorizing a vote to establish the first union at America's largest online retailer.
This is Amazon's second attempt to unionize workers in the last year. Alabama workers defeated an earlier attempt to unionize earlier in the year. However, organizers are asking federal officials to reconsider.
The quarter saw 39% growth in sales for Amazon's cloud computing business. This helps to power online operations like Netflix, McDonald's, and others. Sales at the unit, which includes its advertising business, where brands pay to appear first in shoppers' searches on the site, rose 49%.