Amazon.com on Thursday said fourth quarter net sales rose 38% to $60.5 billion, up from $43.7 billion in the year-ago quarter — or 36% excluding a $1.1 billion favorable impact of foreign exchange rates in the period. Operating income rose 69% to $2.1 billion, up from $1.3 billion in the year-ago period, according to a company press release. The company posted $4.5 billion in physical store revenue — mostly from Whole Foods — during the period, a company executive said in an earnings call transcript.
Net income in the quarter was $1.86 billion, or $3.75 per diluted share, up from $749 million, or $1.54 per diluted share in year-ago period, the company said. The results handily bested the Thomson Reuters I/B/E/S forecast for profit of $1.85 per share on revenue of $59.83 billion cited by Reuters.
For the full year, net sales rose 31% to $177.9 billion, up from with $136 billion in 2016, while operating income fell 2% to $4.1 billion, from $4.2 billion in 2016. Net income was $3 billion, or $6.15 per diluted share, up from net income of $2.4 billion, or $4.90 per diluted share last year. The report factors in a provisional benefit of some $789 million, thanks to tax reform passed in December.
Amazon CFO Brian Olsavsky said in a conference call transcript with analysts that the e-commerce giant remains "very excited about the opportunities [it has] to innovate with the Whole Foods and Amazon teams together."
The company stunned the food and retail industry when it announced last year it would purchase Whole Foods for $13.7 billion, giving it a large distribution network and the potential to incorporate the grocer with its Prime Now and AmazonFresh delivery business. The fourth quarter was the first full period Amazon had owned Whole Foods.
During the period, Amazon said its physical stores posted revenue of $4.5 billion, most of it from Whole Foods — a figure Olsavsky said topped earlier company estimates. A year ago Whole Foods posted revenue of about $3.5 billion. "Our focus has been on continuing to lower prices even beyond the initial ones that we discussed at the close of the deal in late August," he said.
In the coming months, one of the biggest efforts for the company will be on groceries and consumables, and finding ways to integrate Amazon Fresh, Prime Now and Whole Foods to work more closely together in ways that benefit the customer.
Olsavsky was asked by an analyst about recent reports that some Whole Foods locations and its Amazon Fresh unit have been out of stock of some items. He downplayed the long-term impact and potential risk the problem could have on the chain's reputation.
So far, Whole Foods' response to complaints from customers, employees and analysts about the shortage of food on shelves is that nothing in their process has changed to account for the problems — a message restated again this week.
"We've made no changes post acquisition that would have impacted anything related to in stock, except perhaps the fact that the price decreases have brought up demand and there's an amount of rebalancing related to that," he said. "So I think the out-of-stock issue is that — may be getting press or tied more to the increased demand that we're seeing and also selective weather-related restocking issues."
Amazon sends out a litany of accomplishments with its earnings reports, but in his statement Thursday CEO Jeff Bezos was all about Alexa. The company set optimistic projections for the virtual assistant last year, and they were exceeded, he said. "We don’t see positive surprises of this magnitude very often — expect us to double down."
The company had a very good holiday quarter, and not just because online sales online grew 20% to $ 35.4 billion. But also because fulfillment operations were more efficient, thanks to favorable weather and warehouses running at high capacity, Olsavsky said.
Shipping costs in particular are problematic and grew 31% year over year, while in other quarters they outpaced sales. All told in 2017, more than 5 billion items shipped with Prime worldwide and more new paid members joined Prime in 2017 than any previous year — both worldwide and in the U.S., the company said.
Ultimately though, few should be surprised by yet another quarter of impressive growth from Amazon, according to Keith Anderson, Profitero vice president of strategy and inisghts. "One of the biggest misunderstandings that people have about Amazon is thinking that growth will slow now that they’re so big," he said. "They can maintain the pace of growth even at their scale."