Amazon.com Inc. announced last night that earnings fell nearly 35 percent in the first quarter, compared to the same period last year in which the online retailer had a big one-time gain.
But the earnings results met analysts' expectations, and sales were slightly higher than Wall Street had anticipated.
"They accomplished the most important thing for a retailer in that they sold more stuff," said Edward Weller with ThinkEquity Partners.
For the three months ended March 31, the Seattle-based company earned $51 million, or 12 cents per share, compared with $78 million, or 18 cents per share, in the same period a year ago.
In the year-earlier period, Amazon.com recorded a one-time gain of $26 million, or 6 cents per share, because of an accounting change.
Sales increased nearly 20 percent, to $2.28 billion, from $1.9 billion in the first quarter of 2005. The company said sales would have grown 25 percent if not for a $94 million impact from foreign exchange rates.
Analysts polled by Thomson Financial were expecting earnings of 12 cents per share on revenue of $2.22 billion.
Amazon.com also raised its sales guidance slightly for the full year, saying it now expects to see sales of between $9.95 billion and $10.5 billion, up from earlier guidance of between $9.85 billion and $10.45 billion.
For the current second quarter, Amazon.com said it expects sales of $2.03 billion to $2.18 billion.
Amazon.com also said Tuesday that it would appeal a court decision that terminated its relationship with Toys R Us Inc., in an effort to reinstate the online retailing deal. The company said it is seeking a stay of the termination pending a decision.
A New Jersey Superior Court judge ruled in March that Amazon.com had breached a deal with Toys R Us, allowing the companies to sever the partnership to sell toys online. Amazon.com stands to lose tens of millions of dollars a year in exclusivity fees and other payments from the toy retailer if the 10-year deal signed in 2000 ends early.
Amazon.com warned that if it does not prevail in its legal effort, operating profit could be hurt by as much as $50 million in 2006, including as much as $25 million in the current second quarter.
Amazon.com recorded an operating income of $106 million in the first quarter, compared with $108 million in the same period a year earlier. It is currently projecting operating income of between $32 million and $67 million for the second quarter, and of between $390 million and $520 million for the full year. Those projections do not include possible losses if the company loses its appeal.
Weller said he was mystified Amazon.com decided to appeal the ruling, since he would think Amazon.com wouldn't want an unwilling business partner. He had been expecting Amazon.com to strike a deal with another retailer to sell toys and make up for any revenue shortfalls that way.
"What's surprising is that they're appealing it rather than moving forward," he said.
Analyst Steve Weinstein with Pacific Crest Securities said he would have liked executives to explain better why it will take such a hefty charge in the current second quarter if its legal battle doesn't go favorably, but he wasn't surprised Amazon.com would appeal.
"It's a pretty stubborn management team, so I don't think they would roll over easily on anything," he said.
Amazon.com shares fell 24 cents to close at $35.55 Tuesday on the Nasdaq Stock Market. In after-hours trading, shares rose 20 cents. Amazon stock has lost nearly 25 percent of its value so far this year.
AP