Amazon Books A Big Sales Increase
A gaudy 20 percent increase in net sales for the first quarter of 2006 was offset by Amazon’s early adoption of stock-based compensation expense accounting, which hit net income hard.
Employee stock expenses gave investors heartburn as net income only reached $51 million under the new accounting rules adopted by Amazon. Free cash flow, used by some investors to judge a company’s strength, grew 20% to $501 million for the trailing twelve months, compared with $417 million for the trailing twelve months ended March 31, 2005.
The company cited its Amazon Prime program as a strength. It debuted in February 2005, and offers unlimited 2-day shipping with no minimum order in exchange for a $79 membership fee:
Among its highlights, Amazon noted the implementation of click-to-call functionality for its US, UK, German, and French websites. That allows visitors to quickly reach a customer service rep for assistance.
Unfavorable currency exchange rates hurt Amazon’s international business. Although sales from the U.K., German, Japanese, French and Chinese sites were $1.03 billion, gaining 18 percent from the same period in 2005, results without that impact would have delivered a 20 percent increase instead.
Amazon also addressed the legal battle it is facing against Toys ‘R’ Us, which could ultimately push down its operating profit in 2006:
A judge in New Jersey ruled in favor of Toys ‘R’ Us in March. She found Amazon at fault for promising Toys exclusive rights to be Amazon’s toyseller, then finding and placing other toy retailers on its side, frequently next to Toys’ listings.
Amazon claimed Toys’ inability to keep hot items in stock as agreed damaged Amazon’s sales during the 2003 holiday season. A lawsuit from Amazon followed, along with Amazon finding additional toy retailers to partner with for the site.
Although Amazon wants to continue to offer toys from its site, it will have to compete with Toys ‘R’ Us and with Wal-Mart, which is the top toy retailer ahead of Toys ‘R’ Us. That may prove troublesome when the 2006 holiday shopping season begins for Amazon.
David Utter is a staff writer for WebProNews covering technology and business.