Amazon plays Scrooge

26 Oct 2005

Investors hoping for a strong holiday shopping season got a lump of coal from Amazon.com yesterday.

Amazon reported third-quarter earnings and sales that beat Wall Street estimates, but the company's fourth-quarter guidance was lower than analysts were looking for.

Pro forma earnings of 12 cents a share for the third quarter were two cents better than expected, and net sales grew 27% to $1.86 billion, $20 million ahead of forecasts.

Performance was balanced, with North American sales growing 26% and international sales swelling 28%. Electronics sales were strong, growing by 43% year-over-year, and not surprisingly, the latest Harry Potter offering, Harry Potter and the Half-Blood Prince, was the company's biggest seller, with more than 1.6 million copies sold.

But the company's gross margins of 24.9% were below what analysts were looking for, and Amazon's fourth quarter guidance — net sales of $2.86-$3.16 billion and operating income of $135-$210 million — were at the low end of analysts' estimates, as the online retailing pioneer continues to face growing competition from traditional retailers and discount rivals. Still, the company said it was "cautiously optimistic" about fourth-quarter sales.

Shares of Amazon lost 7% in after-hours trading, as the results were a disappointment after a strong second quarter.

Stocks ended lower Tuesday on disappointing guidance from Texas Instruments, falling consumer confidence and rising energy prices.

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