Amazon posts first profit

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In a fourth quarter marked by strong international sales and cost cutting, Amazon.com on Tuesday reported its first-ever profit, on record sales, delivering on its promises to Wall Street. Amazon reported net income of $5m, or a penny a share, under generally accepted accounting principles, well ahead of analysts' expectations. Most analysts had predicted that the company would report a profit on a pro forma basis, which excludes a host of expenses and charges. Fourth-quarter sales were $1.12bn, compared with $972m a year ago. "I think every one was surprised," said Jeff Fieler, an analyst at Bear Stearns. "It was the 81 percent in international sales growth that drove (the revenue) surprise. The rest comes from a lot of different places, predominantly from the cost side. There's lower marketing costs, a big improvement on fulfillment -- in absolute dollars, it dropped by $21m year over year." For the Seattle-based company to post what some analysts would call a real profit under GAAP is quite a turnabout. Amazon had been blasted by accounting critics for being the poster child for pro forma accounting before it began reconciling its results to GAAP and providing investors a higher level of supplemental data. Nevertheless, many analysts had pooh-poohed Amazon's profits pledge because it excluded a host of items such as stock-based compensation, goodwill, restructuring charges and one-time gains. Excluding those expenses, the e-tailer's pro forma profits topped estimates handily, reaching $35m, or 9 cents a share. According to First Call, Amazon was expected to lose 7 cents a share, excluding goodwill, on sales of $1.01 bn. In the fourth quarter a year ago, the company reported a net loss of $1.53 a share on sales of $972m. Although analysts had expected Amazon to post a profit excluding certain items and expenses, most were waiting for the company's outlook to see if it could maintain profitability in subsequent periods. For the current quarter, Amazon said that it expects to reach the break-even point at best or, at worst, to post a pro forma loss of $16m. Sales are expected to be between $775m and $825m, or up 11 percent to 18 percent from a year ago. Those projections are better than current First Call expectations. The company is seen to post a loss of 11 cents a share on sales of $747m. For the full year, Amazon said it is targeting sales growth of 10 percent or more with positive operating cash flow. Pro forma income for operations is expected to be $30m or more. Amazon's fourth-quarter results were propelled by gains in its international units. For the three months that ended 31 December, Amazon reported international sales of $262.4m, up 81 percent from a year ago. Books, music and video remain Amazon's biggest sellers, ringing up revenue of $538m in the fourth quarter, but sales growth was a mere 5 percent. Electronics tools and kitchen sales were $216.6m, down 2 percent from a year ago. Services sales were $98m, up 3 percent. Despite the company's upbeat quarter, growth for certain of Amazon's units may raise a few eyebrows among analysts who have been complaining that the e-tailer has sacrificed growth for profits. "Forecasting 10 percent or more growth for 2002 is still a pretty low overall growth number," said Fieler. The company credited improvements in productivity for its bottom-line gains. By many measures, Amazon has become more efficient. Annualised inventory turns improved to 25 in the fourth quarter, up from 18, while pro forma losses in the company's electronics, tools and kitchen unit fell 72 percent to $20m. Amazon's international businesses also pared their losses while boosting sales. The company's fulfillment, marketing, and technology and content expenses were lower in the fourth quarter compared to the year-earlier period. Amazon has shifted many of its systems to the Linux operating system and hasn't had to market as heavily since many rivals such as eToys have disappeared. That cost cutting is enabling Amazon to pass along some savings to customers. Amazon said it will provide a new class of shipping dubbed "Super Saver Shipping," which will offer free deliver for orders over $99. With the new policy, the company is making a standard practice of its usual holiday-season promotion. Staff writer Margaret Kane contributed to this report.
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