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Amazon predicts disappointing holiday quarter amid supply chain slump 

Click to play video: 'Supply chain issues, earlier holiday shopping could lead to empty shelves, higher prices: economist' Supply chain issues, earlier holiday shopping could lead to empty shelves, higher prices: economist
WATCH ABOVE: Supply chain issues, earlier holiday shopping could lead to empty shelves, higher prices: economist – Oct 26, 2021

Amazon.com Inc on Thursday reported a slump in profit that it expects will continue through the holiday quarter, as heavy spending to maintain delivery operations diminishes the company’s windfall from online shopping.

Shares fell 4 per cent in after-hours trade.

After a year of blockbuster results, the world’s largest online retailer is facing a tougher outlook. In a tight labor market, it has boosted average warehouse pay and marketed ever bigger signing bonuses to attract blue-collar workers it needs to keep its high-turnover operation humming.

Read more: Supply chain woes cost Apple $6B in sales ahead of worse holiday quarter, CEO says

The company meanwhile is contending with global supply chain disruptions. It has doubled its container processing ability, expanded its delivery service partner program and is ramping up its warehouse investments – all at a noteworthy cost.

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The company said it expects operating profit for the current quarter to be between US$0 and US$3.0 billion, short of US$6.9 billion Amazon posted the year prior. In the just-ended third quarter, net income fell by about 50 per cent to US$3.16 billion, a first since the start of the coronavirus pandemic in the United States.

Andy Jassy, who took the helm of Amazon as CEO in July, said in a statement the company would incur several billion dollars of extra expenses in its consumer business to deal with higher shipping costs, increased wages and labor shortages.

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Amazon is “doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” he said. “It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

The retailer has strived to prevent a repeat of the 2013 season when delays left some without presents on Christmas Day.

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Retailers are facing supply constraints on everything from toys and Nike sneakers to laptops, making it difficult for them to stock up their shelves.

CFO Brian Olsavsky said on a call with reporters that the labor shortage had contributed to inconsistent staffing levels.

Read more: Supply chain issues, earlier holiday shopping could lead to empty shelves, higher prices: economist

The company hired 133,000 people to raise its third-quarter full and part-time headcount to a staff of 1.47 million, though it still needs more for the holiday season.

Workers – not physical space – became its primary capacity constraint in the third quarter, Olsavsky said. Amazon faced an extra US$2 billion in costs from labor, inflation and operational disruptions, an amount that is supposed to rise to US$4 billion in the current period, he said.

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And staff are pushing for more, too. Around 2,000 workers in New York City petitioned this week for a vote on whether to make their warehouse the company’s first unionized facility in the United States.

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To juice sales, the company began encouraging customers to shop holiday deals as early as Oct. 4 this year.

The company forecast fourth-quarter sales to be between US$130 billion and US$140 billion. Analysts were expecting US$142.05 billion, according to IBES data from Refinitiv.

Amazon also missed expectations for third-quarter sales, which grew at their slowest pace since the COVID-19 outbreak, as consumers returned to stores after shopping online from their homes for over a year.

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Its cloud computing division was a bright spot, however. Amazon Web Services has seen sales rise with demand for gaming and remote work during the pandemic. CFO Olsavsky said revenue growth re-accelerated, and the company beat analysts’ expectations with net sales of US$16.1 billion in the quarter.

Total net sales rose to US$110.81 billion in the third quarter ended Sept. 30, from US$96.15 billion, a year earlier.

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Analysts had predicted US$111.60 billion, according to IBES data from Refinitiv.

(Reporting by Nivedita Balu in Bengaluru and Jeffrey Dastin in Palo Alto, California; Editing by Arun Koyyur and Grant McCool)

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