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Take that Borders! Amazon posts record 2Q sales

SEATTLE - The nation’s leading online retailer late Tuesday reported a 51% increase in sales and better-than-expected profits as liquidation of former rival Borders began.

If it wasn’t already apparent, the juxtaposition of these events in the same week is a harsh reminder that pure-play online retailers have the ability to render conventional brick-and-mortar chains, or large segments of their business, obsolete despite efforts by the latter to pursue multichannel strategies that leverage physical infrastructures.

Amazon’s sale increased 51% to $9.9 billion for the second quarter ended June 30 and even if a $477 million foreign exchange benefit is excluded, sales increased 44%.

Profits decreased 8% to $191 million, or 41 cents a share compared with net income of $207 million, or 45 cents a share the prior year as operating costs surged 54% to $9.7 billion.

Despite the reduced level of profitability, the earnings per share figure handily exceeded the 34 cents analysts were looking for and shares soared to a new high of 228 in aftermarket trading.

One of the best indicators of Amazon’s performance, judging from the top billing the company gives the information in its press release, is operating cash flow. This metric increased 25% to $3.21 billion for the trailing 12 months, compared with $2.56 billion for the trailing 12 months ended June 30, 2010. Conversely, during that same time frame-free cash flow decreased 8% to $1.83 billion compared with nearly $2 billion.

“Low prices, expanding selection, fast delivery and innovation are driving the fastest growth we’ve seen in over a decade,” said Jeff Bezos, founder and CEO of Amazon.com.

The sales growth was broad based across geographies and categories, with worldwide electronics and other general merchandise sales growing the fastest at 69% to nearly $5.9 billion. Worldwide sales in the media category grew 27% to $3.66 billion.

Geographically, sales in North America grew 51% to $5.41 billion while international segment sales grew 51% to $4.51 billion or by a lesser rate of 36% when measured on a constant currency basis.

More sales growth is expected in the third quarter as well as operating income declines. The company has forecast that sales will increase between 36% and 47% to a range of $10.3 billion to $11.1 billion. Operating income is forecast to fall in a wide range between $20 million and $170 million which represent either a 93% decline or a 37% decline.

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