Amazon’s sales and earnings both rebounded during its recently completed first quarter which ended on March 31.
The Seattle-based company posted an overall sales increase of 9 percent to $127.4 billion compared to Q1 in 2022. Net operating income also improved, jumping to $3.2 billion for the 13-week period versus a $3.8 billion loss last year.
There were also comparable gains made at the juggernaut’s physical stores which are primarily comprised of more than 500 Whole Foods Markets. The company’s other brick and mortar grocery retail entities include 44 Amazon Fresh locations and 30 Amazon Go convenience stores.
During its post-earnings release conference call with financial analysts, CEO Andy Jassy responded to a question concerning Amazon’s strategy in optimizing its physical stores across categories. The 55 year old executive responded: “On the grocery part, what I would say is we continue to progress there. We have an interesting grocery business where we’ve been in it for a while and we have actually quite a large grocery business. It’s just an unusual selection grocery business, very much like how the mass merchandisers got into grocery 25, 30 years ago, where the selection — are items that are not temperature-controlled, so it’s canned goods and packaged food and paper products and pet supplies and personal care and health and beauty and all sorts of consumables.
“And interestingly, in this current environment where consumers are being cautious about what they spend and finding ways to trade down in different product variations, consumables have stayed very, very strong. And so, we continue to be very pleased with that — that part of our grocery business to serve a much broader number of the grocery shopping journeys, which we seek to try to help customers with. We have to have a bigger physical presence since most of the shopping visits are still physical stores. We’ve got two efforts there. We’ve got Whole Foods, which really pioneered the organic grocery space. And that continues to grow nicely, and we’ve made a number of changes in the last year of the business that have changed the profitability trajectory there and feel very good about that. And at the same time, it is still a portion of the overall market segment.
“And if you really want to serve as much of grocery as we’d like to, you have to have a mass physical offering. And that’s what we’ve been working on for a few years with the brand we’ve called Amazon Fresh. We wish we were further along at this point. We’ve tried lots of ideas. We haven’t yet found conviction around the format that we want to go expand much more broadly. We have a set of experiments and ideas and concepts that we’re working on across our dozens of stores there. And we’re pretty optimistic that we have something that may very well work. And we’re hopeful over this next year we find that. But we continue to believe — it’s a big business for us today. It’s continuing to get bigger, but we believe we have the opportunity for it to be much larger for Amazon and where we can help customers more broadly. And I think having that physical presence, we will also have the ability both to be able to serve the grocery products they come for as well as store some other pieces and help customers across some other product lines as well.”
In predicting guidance for its Q2 (which ends June 30), Amazon expected nets sales to be between $127.0 billion and $133.0 billion, or to grow between 5 percent and 10 percent compared with second quarter 2022. Operating income is expected to be between $2.0 billion and $5.5 billion, compared with $3.3 billion in Q2 of 2022.
A few weeks before the second quarter financial release, Jassy sent a letter to shareholders expressing his optimism about the company’s future despite the acknowledgment of challenging economic times ahead. Specifically on grocery, he stated: “Grocery is an $800B market segment in the U.S. alone, with the average household shopping three to four times per week. Amazon has built a somewhat unusual, but significant grocery business over nearly 20 years. Similar to how other mass merchants entered the grocery space in the 1980s, we began by adding products typically found in supermarket aisles that don’t require temperature control such as paper products, canned and boxed food, candy and snacks, pet care, health and personal care, and beauty. However, we offer more than three million items compared to a typical supermarket’s 30K for the same categories. To date, we’ve also focused on larger pack sizes, given the current cost to serve online delivery. While we’re pleased with the size and growth of our grocery business, we aspire to serve more of our customers’ grocery needs than we do today. To do so, we need a broader physical store footprint given that most of the grocery shopping still happens in physical venues. Whole Foods Market pioneered the natural and organic specialty grocery store concept 40 years ago. Today, it’s a large and growing business that continues to raise the bar for healthy and sustainable food. Over the past year, we’ve continued to invest in the business while also making changes to drive better profitability. Whole Foods is on an encouraging path, but to have a larger impact on physical grocery, we must find a mass grocery format that we believe is worth expanding broadly. Amazon Fresh is the brand we’ve been experimenting with for a few years, and we’re working hard to identify and build the right mass grocery format for Amazon scale. Grocery is a big growth opportunity for Amazon.”
In related Amazon news, the company confirmed that it has expanded the number of overall layoffs to 27,000 including several hundred corporate jobs at WFM where the number of operating regions will reportedly be trimmed from nine to six.
