The pre-announcement by Bezos is definitely for the purpose of propping up the stock. Why would any company pre-announce earnings which will be released only 15 days later (April 24th)? Because the stock hit a 3 year low, and vendors are anxious.
This is likely true. I figured out what I believe is causing the number skewing at Amazon. I do not know if you recall but I posted on this thread that there was something wrong with Amazon's inventory number after their release at the end of January. It is here in the archives and I could find it but trust on I said "The inventory numbers are not quite right."
At that time, Amazon had no good news and were reporting a bad quarter but a quarter with their largest gross revenue ever. Holiday season and all. The focus/spin was on losses as a percentage of sales. Of course, this percentage drops in Q4 or profits as a percentage of sales do not increase as much in Q4 for most retailers. The reason is simple the denominator is always higher in Q4. I know of no other retailers that have used a metric such as profits or losses as a percentage of sales. It is worthless metric. Anyhow, I need to focus here.
Amazon showed an inventory at the end of Q4 2000 of about $175 million. I thought this was too low but could not think of a reason to value inventory lower than cost because that increases losses. Now it hits me. The inventory number is figure at lower of cost or market as Amazon shows in their 10Q and 10Ks. Amazon valued non moving products such as high end grills at an amount that is much lower that their cost. That is legal at least as far as the IRS is concerned for a retailer to do although I am not sure SEC permits this without a footnote of a write down. In any case, I am quite sure this occurred in the amount of about $50 million. The revenue in Q4 2000 was $972.3 million. The revenue was $676 million for Q4 1999. Inventory at the end of Q4 1999 was $220 million. The inventory (ratio of inventory to sales) was 3.07 in Q4 1999. The inventory ratio for Q4 2000 was 5.7. I believe inventory at cost should have been about $220 million for Q4 2000. That would given an inventory ratio of 4.4. This added $50 million to net losses but who would care considering losses were $507 million in Q4 2000. Losses would not seem much different to people had the loss been only $457 million. The $50 million used for their loss as a percentage of sales is not that big a deal. It was a few percentage points.
Now management during the conference call lowers guidance to the point analysts and other journalysts are questioning how could this slow down all be due to a slowing economy. That question was asked by numerous analysts during the conference call but it was never answered. Prior to January's guidance, revenue projections for Amazon were $750 million for Q1 2001.
Here is the pre-announcement of their numbers:
"-- Net sales are expected to exceed $695 million, an increase of
more than 21% over net sales of $574 million, fueled by strong
growth in electronics and international.
-- Gross profit is expected to exceed $175 million, an increase
of over 35% compared to gross profit of $128 million.
-- Pro forma operating loss is expected to be slightly less than
$50 million compared to a pro forma operating loss of $99
million. Pro forma net loss is expected to be $0.22 per share
or less, an improvement over pro forma net loss of $0.35 per
share.
-- U.S. books, music and video gross profit is expected to
increase more than 30% on very slight sales growth.
-- Cash and marketable securities are expected to be over $640
million, and the company continues to expect cash and
marketable securities to be over $900 million at December 31,
2001.
-- Net loss is expected to be less than $255 million, down from a
net loss of $308 million. Excluding this quarter's portion of
the previously announced restructuring charge, the net loss is
expected to be less than $150 million.
-- Annualized inventory turnover is expected to be approximately
12, up from 9 in the prior year."
So what do we have? We have analysts with new revenue estimates of $660 million and projected losses of 35 cents per share. Prior to the conference call, the projected revenue was $750 million and losses were projected at 25 cents a share. Amazon handly beats the lower revised revenue numbers although misses the prior numbers by a huge margin. Amazon is very close to the prior loss estimates proforma but actually is a few cents short of the prior loss estimates before lowered guidance.
The cause is the sale of inventory that was not accounted for in in Q4 2000. This does not change the revenue number at all. However, even though much lower margin items such as electronics is what grew in their sales, their gross margins increased. All one needs do in this quarter is properly account for the inventory. That will this time decrease the cost of goods sold and of course reduce losses by $50 million. It also adds to gross profit in percentage and absolute terms. So to get a real number subtract $50 million give or take just a bit from the $175 million in their press release. We will be right in line with Q1 1999 and losses as aa percentage of sales are similar to the analysts original projections and losses in Q1 1999.
My opinion is there was no real increase in gross profit or or in gross margin percentage. There was a tiny increase in total gross. That came in the form of 17% of the increase in sales of $120 million comparing gross sales in Q1 1999 to gross sales in Q1 2000. Real gross profit if inventory had been accounted for correctly would be about $150 million. These numbers fit perfectly. |
