Spending, Whole Foods Impact in Focus When Amazon Reports--Earnings Preview

By Laura Stevens Features Dow Jones Newswires

Amazon.com Inc. is scheduled to announce its third-quarter earnings after the market closes on Thursday. Here's what you need to know:

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EARNINGS FORECAST: Analysts polled by Thomson Reuters expect Amazon to earn 3 cents per share excluding certain items, compared with unadjusted results of 52 cents per share a year ago. The company forecast an operating income range between a loss of $400 million and income of $300 million, compared with income of $575 million a year ago.

REVENUE FORECAST: Quarterly revenue of $42.14 billion is forecast by the analysts, compared with $32.71 billion a year ago. Amazon said it expected sales of between $39.25 billion and $41.75 billion for the quarter.

WHAT TO WATCH:

--SPENDING: The third quarter is usually the heaviest when it comes to spending for the online retail giant, and Amazon has cautioned that this year will be no different. Last year, the company brought more than 20 warehouses online in the same quarter in preparation for the all-important holiday season, something that dinged profitability. Since August, they have filled roughly 50,000 additional warehouse jobs, something that signals the number of openings could be even higher this year. And the company has already said it is in investment mode, citing higher spending on content, engineers and international expansion, among other areas. That has led it to predict it could post its first operating loss in more than three years.

--CORE RETAIL: Even if profits are weak, analysts are expecting a strong quarter of revenue growth for the online-retail giant thanks to the rapid growth in e-commerce. In fact, eMarketer now estimates that Amazon will command about 43.5% of total e-commerce sales this year, compared with 38.1% last year. That is being driven in part by record store closings, note SunTrust analysts, something that keeps people shopping online. It was also a boost for marketplace rival eBay Inc. when it reported earnings last week.

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--WHOLE FOODS: This is the first quarter where newly acquired Whole Foods will be a part of results, following the deal's closing in late August. Expect analysts to ask how the integration of its $13.5 billion acquisition is going, especially following Amazon's decision to slash some prices and sell Whole Foods' private labels online. Executives could provide updates on their plans to install Prime membership in store and other efforts. In any case, the grocery chain is likely to influence Amazon's revenue mix and profitability for the quarter.

--STUDIOS: Amazon Studios, an area of emphasis for the online retail giant, recently underwent a shakeup after the departure of its head, Roy Price, following allegations of mismanagement and sexual harassment. It is unclear what this means for the company's content business, which it has grown largely to attract more high-spending Prime members. Amazon has increased the studio's budget. But the studio has stumbled when it comes to producing content that attracts audiences and buzz.

--HQ2: Executives may provide an update on its search for a second headquarters, which it is expected to announce next year. Already this week it said it received 238 applications from across North America. The company has said it will bring 50,000 jobs and $5 billion in investments to its new location. Incentives may help offset some of that.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

October 26, 2017 05:44 ET (09:44 GMT)