Amazon 2nd-qtr profit declines due to Toys R Us dispute settlement charge, beats analyst views

Amazon 2Q profit falls with Toys R Us settlement

SAN FRANCISCO — Amazon.com Inc. said Thursday that its second-quarter earnings fell while sales rose, as the leading online retailer recorded a $51 million payment to settle a long-standing dispute with former partner Toys R Us.

The revenue increase was not enough to placate analysts, who were expecting even more than Amazon delivered. Shares of Seattle-based Amazon fell nearly 7 percent in extended trading after the results were released.

Sanford C. Bernstein analyst Jeffrey Lindsay said the company’s report was generally good, but its stock — which hit a 52-week high of $94.40 during regular trading — was priced for a blowout quarter.

“That’s why you got such a negative reaction after hours,” he said.

Amazon earned $142 million, or 32 cents per share, in the April-June quarter, 10 percent lower than the profit of $158 million, or 37 cents per share, a year ago. Analysts polled by Thomson Reuters expected a penny less per share.

Sales climbed nearly 15 percent to $4.65 billion, slightly below analyst estimates of $4.69 billion. Amazon’s sales were helped last year by a $53 million non-cash gain from the sale of European DVD rental assets.

Sales of items such as books, CDs and DVDs inched up 1 percent to $2.44 billion in the second quarter, while electronics and other general merchandise sales soared 35 percent to $2.07 billion.

The company’s North American sales rose 13 percent, while international sales increased 16 percent.

During a conference call with reporters, Chief Financial Officer Tom Szkutak said the company saw declines in some North American media categories, including video games and video game consoles.

He noted that in the year before, three of the four hottest games were released during the second quarter, including Nintendo Co.’s popular “Wii Fit.” This year’s gaming decline was balanced out by increased book sales, he said.

Szkutak said that third-party sellers, who offer their goods to consumers through Amazon, made up 30 percent of total unit sales — an increase from the previous year.

Amazon’s net shipping cost, which is a closely watched metric, rose to $147 million from $128 million last year. Revenue from shipping — which includes its membership-based two-day shipping program, Amazon Prime, and its third-party shipping program, Fulfillment by Amazon — dipped to $185 million from $186 million.

In a separate conference call with analysts, the company continued to decline to give details about sales of its electronic reader, Kindle, the price of which Amazon lowered by $60 to $299 in July. Sony shipped 400,000 of its $270 competing Reader device between its original debut in late 2006 and January, company spokeswoman Valerie Motis said.

Interest in e-books and related reading devices like the Kindle and the Reader has climbed in the past several years, though the products still make up a small slice of the overall book market. Momentum continued to build this week, as USA Today said Wednesday that its list of best-selling books will now include Kindle book sales in determining overall sales. Barnes & Noble Inc. said it will launch a large e-bookstore with titles that are readable on devices like iPhones and BlackBerrys. Barnes & Noble will also provide digital books for an e-reader that Mountain View-based Plastic Logic Ltd. expects to release next year.

Without providing specifics, Szkutak said that Kindle sales “are exceeding our expectations” and the lower price has been “helpful.” He wouldn’t say if Amazon plans to release the Kindle outside the United States, but said the international market is “clearly an opportunity.”

Szkutak offered some financial details regarding Zappos.com Inc., the privately held online shoe store that Amazon said on Wednesday it plans to buy in a deal worth about $850 million. Las Vegas-based Zappos had about $635 million in revenue last year and a “small profit,” he said. Amazon already runs its own shoe and handbag shop, Endless.com, and both will continue to run as separate entities after the acquisition.

Lindsay said these figures show Amazon paid handsomely for Zappos.

For the current quarter, Amazon forecast sales of $4.75 billion to $5.25 billion, in line with analyst estimates for $4.92 billion.

Amazon said in June it agreed to pay $51 million to Toys R Us Inc. to end a dispute that began in 2004. The company is making the payment in the current quarter but charged it to operating expenses in the just-reported second quarter.

The lawsuit was over a partnership that gave Toys R Us exclusive rights to supply some toy products on Amazon’s site. Wayne, N.J.-based Toys R Us claimed Amazon violated the partnership by letting others sell some toys on Amazon.com, while Amazon said the toy seller failed to keep items in stock.

The companies originally joined up in 2000 after the toy seller’s Web site, Toysrus.com, suffered a brutal 1999 holiday season in which some customers’ toys were not delivered until after Christmas. That partnership was supposed to last through 2010.

Amazon lost $6.44, or 6.9 percent, in after-hours trading. The company finished regular trading at $93.87.