Amazon sales soar as coronavirus-worried consumers shop from home, but costs rise

Now, Amazon plans to spend at least $4 billion in the current quarter to add warehouse and delivery workers, test its staff and provide them with personal protective gear so it can unclog its network that still struggles to meet customer demand for household staples such as toilet paper and bleach.

"If you're a shareowner in Amazon, you may want to take a seat, because we're not thinking small," Amazon chief executive Jeff Bezos said in a statement. 

Bezos owns The Washington Post.

Sales soared to $75.5 billion in the first quarter, up from $59.7 billion the same quarter a year ago, the company reported Thursday. But profits fell 29 percent to $2.5 billion.

Normally, the company might generate $4 billion in operating profit in the current quarter, Bezos said.

"But these aren't normal circumstances," Bezos said. "Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe." 

Even with that spending, Amazon is still not sure when its regular services, such as its one-day shipping promise to its Prime members, will resume.

"Right now things are still so up in the air that I can't really project when that day will be," Amazon finance chief Brian Olsavsky said during a call with financial analysts.

The new expenses drove Amazon's shares down 4 percent to $2,383, in after-hours trading. During regular trading, the stock closed at a record high of $2,474.

In a media call, Olsavsky said "a large portion" of the money will be spent on hiring workers. Another large piece will be paying for the protective gear for those workers. But the threats to Amazon's warehouse and delivery staff from the coronavirus leave Amazon with little alternative but to spend the additional money, he said.

"There's no choice. They have to make this move," said Brent Thill, an analyst with Jefferies.

Nonetheless, Thill said, the heavy spending slashes expectations for the current quarter.

"The biggest fear came out," Thill said.

At the end of the past quarter, Amazon employed 840,000 workers globally. Olsavsky said it has added another 95,000 employees since then.

Amazon joins Microsoft, Alphabet-owned Google and Facebook in reporting solid financial results this week in the wake of the pandemic. Like those rivals, Amazon is poised to weather the storm and emerge stronger, a sign that the economic fallout from the novel coronavirus is helping the biggest tech giants consolidate their power.

And while Amazon has some exposure to the declining advertising market that raised some concerns for Google and Facebook, its retail and cloud-computing businesses leave it less vulnerable.

The stay-at-home orders are proving devastating to Amazon's brick-and-mortar-focused rivals. Macy's shuttered all of its 775 stores in March and furloughed most of its 125,000 workers. Other retail mainstays, such as Neiman Marcus, are edging toward bankruptcy, analysts say.

Amazon continues to struggle to meet the huge demand from Americans and from international customers, many of whom have remained at home for more than a month as the coronavirus pandemic spreads. To unclog its network, Amazon has prioritized stocking and delivering items deemed most essential and raced to hire 175,000 U.S. workers in the span of a few weeks, hiring it completed this week, Olsavsky said.

"What's really happening is the delays in the warehouse of handling the volumes, and picking and packing and getting it to shipment is really what's causing delays right now," Olsavsky said. "We're still shipping very fast at the end." 

In an unusual move, Amazon spent much of its quarterly earnings release Thursday highlighting its efforts to address the pandemic for both employees and customers. It repeated announcements from earlier that it has made 150 "significant process changes" to help ensure its teams stay healthy, as well as procuring 100 million face masks that are now required for workers.

It also said it was testing a new coronavirus testing process with front-line workers. On the media call, Olsavsky said the company expects to spend $300 million on testing in the current quarter. If Amazon is successful in developing the program, those costs probably will hit $1 billion over the course of this year, he said.

"We're not sure how far we'll get in the relevant time frame, but we think it's worth trying, and we stand ready to share anything we learn," the company said when it announced the pilot.

Amazon has had to confront restive warehouse and delivery workers who have raised concerns that the company hasn't done enough to protect them from contracting the virus. As employees at dozens of its facilities have tested positive for covid-19, the disease caused by the coronavirus, the outbreak hit the company's U.S. warehouses and some workers complained about Amazon policies that push them to meet the per-hour rate at which the company wants orders fulfilled, fearing the practice discourages safe sanitary practices such as washing hands after a cough or sneeze. Other employees complained about "stand-up" meetings, where workers stand shoulder-to-shoulder at the start of each shift.

Since then, Amazon has modified policies, ending the stand-up meetings. It also has begun to hand warehouse staff face masks and check their temperatures at the start of shifts, sending workers home for three days if they register 100.4 degrees Fahrenheit or higher.

Amazon said in its release that it purchased more than 31,000 thermometers and more than 1,000 thermal cameras.

Amazon has repeatedly defended its treatment of workers, saying it has ramped up cleaning its facilities and procuring personal protective equipment, and it has noted that the vast majority of employees continue to show up for work every day.

Amazon has fired some of the activists, while workers continue to press for better benefits and improved conditions. It also has begun airing commercials, lauding its warehouse and delivery staff as front-line "heroes" in the pandemic crisis.

The company on Thursday also highlighted its efforts in cloud computing-arm Amazon Web Services, which it said is helping researchers and health officials to better understand covid-19 through providing a "centralized repository of curated, up-to-date, pre-processed, and publicly readable data sets focused on the spread and characteristics of the virus." It includes data from Johns Hopkins University, Definitive Healthcare and Carnegie Mellon's Delphi Research Group.

AWS is also supporting the White House's High Performance Computing Consortium, Amazon said, as well as providing resources to help schools transition to online learning.