Amazon sales hit new high, but investors feel let down

During the final three months of 2010, Internet giant Amazon.com added 2,500 new workers to its payrolls, delivered "millions" of Kindle e-readers and surpassed $10 billion in quarterly sales for the first time in its 16-year history — all despite a tough economy.

Amazon said Thursday its fourth-quarter sales surged 36 percent from a year ago to $12.95 billion, while its profit rose 8 percent to $416 million, or a better-than-expected 91 cents a share.

Analysts forecast a per-share profit of 88 cents on sales of $12.99 billion.

Still, Amazon failed to live up to investors' lofty predictions, and shares plunged $17.15 to $167.30 in after-hours trading. Shares closed the regular session up $9.06, or 5.2 percent, at $184.45 — near their all-time high of $191.25 set last week.

One concern: Amazon, which released its results after the closing bell, gave a first-quarter outlook that fell below Wall Street's prediction.

Another concern: Amazon's operating costs rose 38 percent from a year ago, squeezing profit margins.

Citi Investment analyst Mark Mahaney noted that expectations were "very high," and Amazon's per-share profit "didn't deliver against those expectations."

"But we see this as an expectations miss and not a fundamentals miss," he added.

Stifel Nicolaus analyst Jordan Rohan sounded a similar note.

"Amazon did exactly what it told investors it would do," said Rohan, who rates the stock a "hold." "What does that tell you? It tells you that expectations got ahead of themselves."

Amazon projects sales for the quarter now under way to come in between $9.1 billion and $9.9 billion, which would be a year-over-year increase of 28 percent to 39 percent. It predicts operating income of $260 million to $385 million, or a decline somewhere between 34 percent and 2 percent. (The company did not give a forecast for its per-share profit.)

Chief Financial Officer Tom Szkutak said Amazon's rising costs partly reflect the addition of 13 new distribution centers in 2010, giving it a total of 52.

"If you look at the returns that we've gotten on ... previous fulfillment centers that we've launched, they've been great uses of capital," Szkutak told analysts on a conference call.

BGC Partners analyst Collin Gillis said he rates Amazon stock a "sell" because he sees it as overvalued.

He wrote in a research note to clients that Amazon's market capitalization, at roughly $82 billion, exceeds the combined market cap of Barnes & Noble, Borders, Macy's, Nordstrom, Best Buy, Staples and Dell.

While Amazon excels at selling physical versions of books, movies and music, it holds "only a mediocre" competitive edge in the digital media market, Gillis said.

"Apple's iTunes is the leader for digital music, (and) Netflix is the leader for streaming movies," he wrote before Amazon released its results. "Amazon has a leadership position in e-books ... but its continued e-book leadership is not a given."

Gillis cited the popularity of Apple's iPad, a rival to Amazon's Kindle, as well as new competition from Google, which opened an electronic bookstore in December.

As usual, Amazon did not reveal the number of Kindle e-readers it sold, saying only that "millions" were bought during the fourth quarter. Prices for the device start at $139.

For all of 2010, Amazon's sales increased 40 percent to $34.2 billion, while its profit rose 28 percent to $1.15 billion, or $2.53 a share.

Amazon ended 2010 with 33,700 employees worldwide, up from 24,300 a year ago, and an increase of 2,500 from the third quarter.

Chief Executive Jeff Bezos noted that Kindle electronic books are now more popular than paperbacks on Amazon's website.

In fact, Amazon said it has sold 115 Kindle books for every 100 paperbacks since the beginning of this year.

"This milestone has come even sooner than we expected — and it's on top of continued growth in paperback sales," Bezos said in a statement.

— Amy Martinez

Macy's hopes to attract online shoppers with a new free-shipping program. Its website began shipping online purchases of $99 or more for free Wednesday, with some exceptions and no end date. Orders below $99 are shipped for an $8 flat fee. — AM

Nordstrom will begin selling Brooks Brothers menswear and children's clothes this summer on its website and at about 40 stores, including its downtown Seattle and Bellevue Square locations. The partnership represents a return to the wholesale business for Brooks Brothers, which sold clothes through independent specialty stores in the early-1990s. — AM

Vertical World plans to open a new climbing gym at the former Marco Marine boat manufacturing facility in Seattle's Magnolia neighborhood this fall, replacing a smaller location nearby. Founded in 1987 by Rich Johnston, Vertical World has five Northwest locations. It bought the Marco Marine site for $1.6 million. — AM

Clothing chain Anchor Blue, which filed for bankruptcy this month for the second time in less than two years, is closing all of its locations and will honor gift cards, certificates and store credits as payment for purchases through Friday. The California-based company has stores in Bellingham, Kennewick and Lynnwood. Its Tacoma Mall store recently closed. — AM

See's Candies has added two locations in the Seattle area, giving it nine local stores. The San Francisco-based company opened Thursday at Southcenter Square in Tukwila and opens Friday at the Commons at Issaquah. — AM

Tacoma Mall announces two new stores coming in May: Casual clothing chain The Buckle and women's fashion retailer Francesca's Collections. Also, American Eagle will renovate and expand its Tacoma Mall store, adding more than 2,500 square feet, and Vans will take 3,600 square feet previously occupied by another retailer, giving it twice as much space. — AM

Retail Report appears Fridays. Amy Martinez covers goods, services and online retail. She can be reached at 206-464-2923 or amartinez@seattletimes.com. Melissa Allison covers the food and beverage industry. She can be reached at 206-464-3312 or mallison@seattletimes.com.