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Sales dip in Q4 at Amazon’s physical stores

Fiscal calendar shift, intersegment activity at Whole Foods impact results

Amazon.com Inc. saw revenue decline for its brick-and-mortar stores despite reporting sharp gains in total sales for the 2018 fourth quarter and fiscal year.

The e-tail giant said late yesterday that, for the fourth quarter ended Dec. 31, physical store sales totaled $4.4 billion, down 3% from $4.52 billion a year earlier. On a sequential basis, brick-and-mortar store sales rose 3.6% from $4.25 billion in the third quarter.

Amazon’s U.S. physical stores currently include 476 Whole Foods Markets, nine Amazon Go convenience stores, 18 Amazon Books stores, three Amazon 4-Star outlets and 87 Amazon Pop-Up sites. The company doesn’t break out sales totals for its brick-and-mortar retail segments.

“Physical stores decreased 3% year over year, and this is primarily Whole Foods but also includes our other stores, the Amazon Books stores, Amazon Go, Amazon 4-Star. What happened in the quarter was we were lapping the period last year when we had purchased Whole Foods in Q3,” Amazon Chief Financial Officer Brian Olsavsky told analysts in a conference call Thursday. “In Q4, we adjusted their fiscal calendar to link it up with Amazon's, and it added about five days of revenue into Q4 of last year. So we're comping that year over year.”

Olsavsky noted that the decrease also reflects accounting from intersegment activity between Prime Now and Whole Foods.

“The online orders where people go to the Prime Now app and then order for delivery or pickup at Whole Foods stores is counted in the online stores component of revenues,” he explained. “So if you adjust for those, the Whole Foods growth year over year on an apples-to-apples basis was approximately 6% because of some of that — again, mostly the year-over-year accounting or days true-up issue — is showing up as negative 3% in physical stores.”

During 2018, Amazon expanded grocery delivery from Whole Foods Market through Prime Now to more than 60 U.S. metropolitan markets and Prime Now Pickup service from Whole Foodss to over 20 U.S. metro areas.

Amazon’s online store sales came in at $39.82 billion for the fourth quarter, up 13% from $35.38 billion a year ago. Sequentially, the increase was 37% — fueled by holiday sales — from nearly $29.1 billion in the third quarter.

Overall, Amazon’s net sales jumped 20% to $72.38 billion in the 2018 fourth quarter from $60.45 billion a year earlier. Net earnings were $3.02 billion, or $6.04 per diluted share, compared with $1.87 billion, or $3.75 per diluted share, in the 2017 quarter. Analysts, on average, had projected earnings per share (EPS) of $5.67, with estimates ranging from a low of $4.37 to a high of $8.27, according to Refinitiv/Thomson Reuters.

For the full year, Amazon tallied net sales of $232.89 billion, up 31% from $177.87 billion in 2017. Net income rose to $10.07 billion, or $20.14 per diluted share, from $3.03 billion, or $6.15 per diluted share, in 2017. Analysts’ consensus forecast was for full-year EPS of $19.86, with projections running from a low of $18.47 to a high of $27.40, based on estimates from Refinitiv/Thomson Reuters.

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