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Thu, Jul 24, 2003 - Page 12 News List

Amazon halves quarterly loss and keeps on growing

NY TIMES NEWS SERVICE , NEW YORK

Amazon.com, citing a sharp increase in sales, said Tuesday that it cut its loss in half for the second quarter. The company, the largest general retailer on the Internet, said its strategy of discount prices and free shipping was the largest contributor to its growth.

Sales increased by 37 percent, to US$1.1 billion, benefiting from the euro's rise, which increased the dollar value of its European sales by US$55 million. If exchange rates had been the same as a year ago, Amazon's sales would have increased by 30 percent.

For the quarter, Amazon lost US$43.3 million, or 11 cents a share, compared with a loss of US$93.6 million, or US$0.25 a share, in the period a year earlier.

Excluding costs of stock-based compensation, currency charges related to its debt and some other items, Amazon calculated a pro-forma profit of US$46 million, compared with a pro-forma loss of US$4 million in the quarter a year earlier. The latest pro-forma profit translates into US$0.10 a share, well above the US$0.06 expected by analysts.

"Amazon has provided a case study about how you can really ignite growth by decreasing prices," said Safa Rashtchy, an analyst with US Bancorp Piper Jaffray. "For several years, Amazon was lagging the broader e-commerce market, but now they are bucking the trend and growing faster than the market."

Amazon said it sold 1.4 million copies of Harry Potter and the Order of the Phoenix, shipping them to 175 countries and even Antarctica. By comparison, Amazon sold 400,000 copies of the previous Harry Potter book in 2000. But this time, Amazon is discounting the book by about 40 percent and barely broke even on it, Amazon's chief financial officer, Tom Szkutak, told investors on a conference call. It was still worthwhile, he said, because 250,000 of the buyers had never before made a purchase from Amazon.

Harry Potter helped accelerate growth in sales of media products in North America. Sales increased by 14 percent, to US$449 million, in the quarter.

In the period a year earlier, North America media sales increased by only 6 percent.

Growing even faster are sales of electronics and general merchandise in North America, long a sluggish segment. Sales in this category were US$177 million in the second quarter, up 36 percent. A year ago, electronics sales increased 18 percent.

"It takes time to educate customers about new offerings," Jeffrey Bezos, Amazon's chief executive, said on the conference call. "At a certain point you reach a kind of critical mass."

Global sales rose by 81 percent, to US$397 million. The company continues to expand its discount strategy overseas. It said on Tuesday that it would reduce the minimum for free shipping in Britain to ?25 from ?39.

Amazon said it now expected to post sales of US$4.9 billion to US$5.1 billion this year, an increase of 25 percent to 30 percent over last year.

It expects the growth in its operating profit to be somewhat less because it planned to introduce several more categories of merchandise heading into the holiday shopping season, and new departments incur start-up costs.

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