Amazon Reports Strong Retail Demand, but Says Future Is Less Clear

Business|Amazon Reports Strong Retail Demand, but Says Future Is Less Clear

Despite uncertainty over President Trump’s trade war, Amazon on Thursday reported surprising resilience among the consumers who drive its retail business. But profit margins tightened at its cloud computing service, and executives cautioned there could be turbulence ahead.

Overall, sales from April through June at the e-commerce giant rose to $$167.7 billion, 13 percent more than the same period a year earlier. Profit was $18.2 billion, up 35 percent.

For the current quarter, which ends in September, Amazon told investors to expect sales of $174 billion to $179.5 billion, and operating profits between $15.5 and $20.5 billion. The guidance showed confidence that customers will keep spending, but reflected a broad range of how much it will cost to serve them.

Customers have kept buying, and prices have not broadly increased because of tariffs,

Andy Jassy, Amazon’s chief executive, said on a call with investors. That could change later this year, he cautioned, as Amazon and the other sellers on its marketplace burn through the inventory they have stocked in the United States.

“There are a lot of things that we don’t know, but that’s what we’ve seen so far,” Mr. Jassy said.

Amazon, along with its peers in Big Tech, has been on a frantic spree to develop data centers, massive remote buildings packed with servers that power cloud computing and artificial intelligence. In May, Mr. Jassy told investors that Amazon could have sold more cloud services if it had more data centers, which the company was building more rapidly.

On Thursday, Amazon reported that it spent more than $31 billion on capital expenses in the last quarter, about twice as much as a year earlier. Mr. Jassy said on the call that Amazon would spend about that much in each of the next two quarters as well, and that the backlog for the energy-hungry facilities could still drag on for several quarters.

“The single biggest constraint is power,” Mr. Jassy said.

The cautionary language contributed to a 7 percent drop in Amazon share price in after-hours trading.

Amazon’s cloud services posted $30.9 billion in sales, up 17.5 percent. But the division reported lower profit margins than in recent quarters, producing $10.2 billion in operating income. It accounted for just over half of the company’s operating profit.

In its e-commerce and retail business, the number of items sold grew 12 percent, a sign that consumers did not slow their spending despite tariffs and a less certain economy. Online sales of products by Amazon directly to customers grew 11 percent, to $61.5 billion. The sales of services to sellers on Amazon’s marketplace, such as listing and fulfillment, grew 11 percent to $40.3 billion. In Amazon’s physical stores, such as Whole Foods and Amazon Fresh, sales grew 7 percent to $5.6 billion.

Operating profit in its North America retail business grew 48 percent, to $7.5 billion. Some of that comes from growth one of its most profitable businesses: selling advertising. Ad sales grew 23 percent to $15.7 billion.

Amazon has also worked to make its operations more efficient by redesigning how it moves and stores products across its more than 1,000 U.S. warehouses. By bringing the right products closer to customers, Amazon can make them less costly and quicker to deliver, which in turn boosts sales.

The average distance a package travels is down 12 percent, Mr. Jassy said on the call.

It has also kept costs down by not hiring as much, even as its business has grown. The company had 1.546 million employees, up just 1 percent from a year earlier.