Amazon’s Q2 Forecast Weighed Down by $4-Billion in COVID-19 Related Costs, Shares Fall

On April 30, Amazon.com Inc. warned that it could post a loss in the second quarter as it tacked on about US$4 billion in costs related to the COVID-19 pandemic, sending its shares down 5% in extended trade. The e-commerce giant has been spending heavily to keep up with a surge in online orders. 

The company had earlier said it would hire about 175,000 workers and raise wages by US$2 for hourly workers as well as overtime pay, which would increase expenses by nearly US$700 million. “Under normal circumstances, in this coming Q2, we’d expect to make some US$4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that US$4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe,” CEO Jeff Bezos said in a statement.

Amazon forecast operating income in the range of a loss of US$1.5 billion and profit of US$1.5 billion for the second quarter. Analysts were expecting operating income of US$3.80 billion, according to research firm FactSet.The company forecast net sales in the range of US$75 billion to US$81 billion for the second quarter. Analysts were expecting revenue of US$77.99 billion, according to IBES data from Refinitiv.

Net sales rose to US$75.45 billion from US$59.70 billion in the first quarter ended March 31, as the retail giant recorded a surge in demand for online orders of essential goods during the COVID-19 pandemic. Analysts had expected revenue of US$73.61 billion, according to IBES data from Refinitiv.

Source: Financial Post


Loblaws Reports Q1 Profit and Sales up as Customers Stockpiled Supplies

Canada’s largest grocer believes it will see “financial pressure” in the future as customers’ shopping habits change and costs rise during the COVID-19 pandemic. Loblaw Companies Ltd. saw a recent spike in sales much like Canada’s other large grocers as customers stockpiled foo.

The company’s first quarter “was a tale of 14 days,” president Sarah Davis told a conference call with analysts April 29 after Loblaw, which owns Loblaws grocery stores and the Shoppers Drug Mart chain, released its quarterly earnings report. Loblaw saw “a rush to retail” after the coronavirus was declared a pandemic, she said, noting customer count and basket size quadrupled and e-commerce traffic tripled. The initial rush of purchases has evened out somewhat in April, Ms. Davis said. However, behavioural changes have continued as people shop less often but buy more each trip. 

Chief financial officer Darren Myers said during the two weeks ended March 21 that Loblaw saw grocery store sales grow about 44%. Pharmacy sales grew 26%, while pharmacy front-store sales jumped 42%. Loblaw estimates the pandemic generated an incremental $751 million in revenue during the quarter, he said. The positives were partially offset by increased operating costs related to the coronavirus, which started ramping up near the end of the first quarter.

“It is very difficult to predict how sales will evolve,” said Myers, noting the company expects, for example, possible decreases in discretionary spend categories.“Since the beginning of the second quarter, we’ve experienced a pronounced change in the trajectory of our sales.”

During the first five weeks of the second quarter, food sales grew about 10%, he said, but drug sales declined about 6%.The company is also seeing declines in its clothing, general merchandise and beauty categories, which are “all relatively high-margin parts of our business,” Davis said.

General merchandise and apparel were negative in the last two weeks of the first quarter, she said, and continue to be so in most weeks of the second quarter to date with apparel experiencing a larger drop. Those drops comes as COVID-related costs continue.

Loblaw is spending about $90 million every four weeks on efforts to keep its stores safe for customers and employees, on temporary wage increases and other measures, Myers said. “I would say these are temporary costs right now that we expect to continue through the pandemic, but it’s too difficult for any of us to predict what happens afterwards.” Loblaw expects those costs to hit more heavily in its second quarter.

A bright spot for the company has been a tripling of demand for its e-commerce services, which includes both store pickup and home delivery options. The company’s online apparel, beauty and pharmacy businesses are all up, she said. Loblaw did not expect this level of demand for two or three years, said Davis.

The average wait time is now six days, she said, with plans to get back to a daily turnaround time. “We’ve been adding capacity as fast as we can in order to get back to that.”

While it’s “difficult to anticipate precisely how our business will change in any emerging new normal,” executive chairman Galen Weston said the company believes “that online grocery shopping will retain a significant proportion of the current sales penetration.”

He also noted more customers responding to digital promotion strategies and adopting digital health-care services as possible customer trends Loblaw expects will accelerate substantially from the time before the pandemic.

The company reported a first-quarter profit attributable to common shareholders of $240 million or 66 cents per share for the 12-week period ended March 21. That compared with a profit of $198 million or 53 cents per share in the same quarter last year. Revenue totalled $11.8 billion, up from nearly $10.7 billion in the first quarter of 2019.

Food retail same-stores sales rose 9.6%, while drug retail same-store sales climbed 10.7% as pharmacy same-store sales rose 10.6% and front store same-store sales gained 10.7%. On an adjusted basis, Loblaw said it earned $352 million or 97 cents per share, up from $290 million or 78 cents per share a year earlier.

Source: The Star
Source: Globe & Mail