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Amazon Earnings Expected to Recover Even as Inflation Weighs on Demand

[ad_1] Inc.

AMZN -2.59%

likely returned to profitability last quarter even as inflation and recession fears dented consumer sentiment.

The company is expected to post a 15% rise in year-over-year sales. That would be up from recent quarters, though below the growth of a year earlier. After the closing bell Thursday, analysts expect Amazon to report $127.4 billion in sales for the three months through September. Analysts surveyed by FactSet expect the company to announce a profit of $2.2 billion, a 32% decline from a year earlier but an improvement after two consecutive quarters of losses.

The company recorded its first loss in seven years during the first quarter and another in the following quarter as a slowdown in sales and its investment in the electric-vehicle maker

Rivian Automotive Inc.

hit its bottom line.

Amazon and other tech titans who have flourished through the pandemic have been reporting slowdowns this year as more people get out and are doing less shopping, working and entertaining themselves online. At the same time, many tech companies have been hit by a slowdown in advertising and growing concerns about inflation and the health of the economy.

While Amazon’s sales growth this year has cooled to more-historical norms, its sales remain well above prepandemic levels.

At the height of the health crisis, Amazon notched record sales. As its logistics network struggled to keep up with orders, it launched an expensive build-out of its warehouses and other infrastructure. With demand coming down, Amazon has had to pivot.

Chief Executive

Andy Jassy

has moved to rein in some excesses with cost-cutting. The company has been subleasing millions of square feet of excess warehouse space and putting off the construction of new facilities while thinning out its hourly workforce through attrition.

The company has enacted a hiring freeze through the end of the year at its retail division, the segment that drives its core sales and is responsible for a large part of its slowdown this year. It has also paused hiring among some teams at its Amazon Web Services cloud-computing division.

Amazon’s earnings continued to be underpinned by the strong performance of Amazon Web Services as well as its expanding advertising business. Both segments have grown by double-digit figures and brought in billions of revenue for the company.

Amazon is headed toward the end of the year with added challenges. It has looked to add more than 100,000 workers to meet the expected holiday season demand, but that strategy has come with a cost. Amazon recently said it would spend $1 billion to raise average starting salaries to $19 an hour nationwide and is earmarking millions to raise wages and benefits for its delivery employees.

Consumers will be more likely to return to bricks-and-mortar stores for their holiday shopping this year, and economic concerns will likely weigh on spending, according to analysts. Amazon’s own

Jeff Bezos

seemed cautious about the future. He recently said it is time to “batten down the hatches,” referring to warning signs that the U.S. is headed for a recession.

Write to Sebastian Herrera at [email protected]

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