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Sales grow, but profits plunge at Amazon

Profits at Amazon.com declined 96% to $7 million, or a penny a share, even though sales advanced 29% to $12.8 billion.

The ongoing build out of Amazon.com’s supply chain infrastructure hurt the company’s overall profitability, but positioned the company to deliver an even better shopper experience in the future. Amazon.com expects to open approximately 18 new warehouses this year.

Sales in the company’s North American segment, including U.S. and Canadian sites, increase 36% to $7.3 billion. International segment sales, representing the company’s U.K., German, Japanese, French, Chinese, Italian and Spanish sites, increased 22% to $5.5 billion. Sales grew fastest in the electronic and general merchandise areas, up 38% to nearly $8.2 billion. Media sales on a worldwide basis increased 13% to $4.1 billion.
Despite the top line growth, operating profit during the quarter declined to $107 million from $201 million the prior year.

Amazon.com CEO Jeff Bezos made no mention of the profitability decline in a press release announcing the company’s results, but instead referenced the popularity of the company’s free shipping service.

“Amazon Prime is now the best bargain in the history of shopping – that is not hyperbole,” said Bezos said in the prepared statement. “We successfully launched Prime seven years ago with free unlimited two-day shipping on one million items. The price of annual membership was $79. Since then, Prime selection has grown to 15 million items. We've also added 18,000 movies and TV episodes available for unlimited streaming. And we’ve added the Kindle Owners’ Lending Library – borrow 170,000 books for free with no due dates – it even includes all seven Harry Potter books. What hasn’t changed since we launched Prime? The price. It’s still $79. We’re very grateful to our Prime members, and thank them whole-heartedly for the business and for the word-of-mouth that has made this program grow.”

The trend of strong sales growth and reduced profitability is expected to continue in the third quarter as Amazon.com has forecast an operating loss of between $50 million and $350 million.