Amazon’s third-quarter financial results drew more attention to supply chain issues and labor shortages—as well as to slowing online growth as business returns to a more “normal” pattern.
Total Amazon sales rose 15% in the third quarter, to $110.8 billion, a dramatic slowdown from growth rates the company had achieved in previous quarters. The slowest growth came in Amazon’s online store division, where sales rose 3% over last year’s third quarter, though sales hit almost $50 billion. By comparison, In last year’s third quarter, sales rose 33% over the comparable period in 2019, and sales rose by 50% in both last year’s fourth quarter and the first quarter of this year.
Slowing growth and a jump in costs led to a plunge in net income, from $6.3 billion in last year’s third quarter to $3.2 billion this year. New Amazon CEO Andy Jassy noted that, since the pandemic began, the company has doubled the size of its fulfillment network. In a prepared statement, he also said that the company continues to spend heavily.
“In the fourth quarter, we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Jassy said.
In a conference call with analysts, Amazon chief financial officer Brian Olsavasky provided some more details on the impact of the labor shortage, while also noting that higher inflation as contributed to higher costs. In the third quarter, Olsavsky said, "labor became our primary capacity constraint, not storage space or fulfillment capacity. As a result, inventory placement was frequently redirected to fulfillment centers to have the labor to receive the products.
"This resulted in less optimal placement, which leads to longer and more expensive transportation routes. In short, our operations are normally well-staffed and optimized to be in-stock and to deliver to customers in 1 to 2 days. Labor shortages in supply chain disruptions have set this balance and resulted in additional costs to ensure that we continue to maintain our service levels to customers."
Amazon expects sales in the fourth quarter to increase between 4% to 12% after posting huge gains last year. Given the modest growth forecast plus higher spending, Amazon said it expects profits in the fourth quarter to range from breakeven to $3 billion. In last year’s final quarter, it made $6.9 billion.