From SCDigest's On-Target E-Magazine
- July 28, 2015 -
Supply Chain News: A Review of Second Quarter Results for Amazon.com
Stronger than Expected Results Propel Market Value Past Much Larger Walmart; Fulfillment and Shipping Costs are 23% of Merchandise Sales
SCDigest Editorial Staff
By now you have probably heard the headline news that Amazon.com has surged ahead of Walmart in total stock market valuation, after posting second quarter results that beat expectations and sent the stock price surging 20%.
That put the value of Amazon at just about $250 billion at the end of the day Monday, versus around $230 billion for Walmart, the world's largest company and retailer by sales revenue. Walmart had annual sales of $485 billion in 2014, versus $89 billion for Amazon.
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| That in turn means net shipping costs at Amazon were 5.6% of sales, a big number for sure but actually down from the 6.9% seen in Q2 2014. |
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What Do You Say?
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But investors want growth, and there the story is very different. Walmart saw sales rise just 1.8% in 2014. In its just reported second quarter, Amazon had sales growth of 20%, which would have been up 27% if not for the effects of currency fluctuations with the recent rise of the US dollar against many other currencies worldwide.
Amazon merchandise sales were even more impressive, rising 31% in North America in Q2, up from 29% in Q2 2014. North American merchandise sales for the first half were also up 31%.
Merchandise sales outside North America were up a comparatively weak 10%, but again excluding currency effects the rate would have also been 31%, as Amazon continues to defy the law of large numbers.
Still, Amazon struggles to make money, posting net income in Q2 of just $92 million, only 0.3% of its $23.1 billion in sales in the quarter (see graphic below showing Amazon's recent profit history). For the first half it had profits of $35 million after losing money in Q1.
Cash flow is much better, however, with operating cash flow increasing 69% to $8.98 billion for the trailing twelve months, before the costs of financing all those fulfillment centers weighs on the bottom line.
As usual, we like to look at little deeper at the Amazon numbers, especially related to logistics. Fulfillment costs - which do not include customer shipping but do include the amortized costs of its massive fulfillment center build out - were $2.87 billion in Q1, up 20.7% from 2014. That we believe should be compared to total merchandise sales, which were up 23.8%.
So fulfillment costs were 17.4% of merchandise sales in Q2, versus 17.9% in Q1 2014, a slight improvement.
Amazon brought in $889 million in shipping revenue, including both per order shipping charges as well as from its Amazon Prime membership, which provides a growing array of shipping benefits for a fixed annual price of $99 dollars.
(Distribution/Materials Handling Story Continues Below
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