It was a difficult time for the Amazon.com Inc (NASDAQ: AMZN) share price last week. Between Tuesday and the end of the week, Amazon shares declined 14.25%. Could this be a warning signal for investors in S&P/ASX 200 Index (ASX: XJO) retail shares?
The Amazon share price briefly went lower than its current level in June 2022. That was the bottom of the 2022 decline for many shares but, that said, Amazon hasn't been this low since the worst of the COVID-19 crash.
So why did the e-commerce and cloud computing business drop so much?
Amazon's disappointing update
When a business announces its result, not only are investors looking at the performance of the numbers themselves, but they compare against what analysts expected the business to report. A company could report 50% revenue growth but disappoint the market if it was expected to grow by 75%.
Amazon reported its net sales increased 15% to $127.1 billion. However, the international segment reported sales fell 5% year over year to $27.7 billion but increased 12%, excluding changes in foreign exchange rates.
According to reporting by CNBC, Refinitiv estimates forecast Amazon's revenue would be $127.46 billion.
Amazon Web Services' revenue of $20.5 billion also underperformed expectations of $21.1 billion, according to StreetAccount.
In the fourth quarter, Amazon was expected to generate sales of $155.1 billion, according to Refinitiv. Yet the company said it expected to achieve fourth quarter revenue between $140 billion to $148 billion.
Free cash flow decreased to an outflow of $19.7 billion for the trailing 12 months, compared with an inflow of $2.6 billion for the 12 months to 30 September 2021.
The relatively new CEO, Andy Jassy, said:
There is obviously a lot happening in the macroeconomic environment. And we'll balance our investments to be more streamlined without compromising our key long-term, strategic bets.
What could this mean for ASX 200 retail shares?
The numbers reported, and the investor reaction, raise some questions. Are online retailers now suffering from the end of lockdowns, with customers going back to bricks and mortar shops?
Is inflation now starting to impact household demand for products? Plus, remember that households have already bought plenty of household goods over the last two years. How many more things can people buy in the short term?
Costs for businesses have also been increasing, meaning that profitability has been reduced.
The Kogan.com Ltd (ASX: KGN) share price has also been pummelled during 2022. While it's not an ASX 200 share, I think it's a good example of what may be happening in Australia.
According to Kogan's update for the three months to September 2022, gross sales declined 38.8% to $202.3 million. At the same time, active customers dropped 12.3% to 3.6 million and gross profit declined by 40.4% year over year to $31.3 million. The company put this down to "lower gross margins following the accelerated sell-through of excess inventory, the vast majority of which the company expects to complete by early calendar year 2023".
A reduction of the share prices of various retailers in 2022 like Wesfarmers Ltd (ASX: WES), JB Hi-Fi Limited (ASX: JBH), Woolworths Group Ltd (ASX: WOW), Harvey Norman Holdings Limited (ASX: HVN), and Premier Investments Limited (ASX: PMV) may indicate similar investor worries about profitability, demand, and inflation.
However, I believe there is one thing going for many of the names I just mentioned. While Amazon's reported period is compared against locked down periods, which boosted e-commerce sales, last year was hurting bricks and mortar retailer sales. The open stores this year can help sales.
Names like Wesfarmers, JB Hi-Fi, and Premier Investments have recently told investors that early FY23 sales are still showing growth. The second half of FY23 may not show growth, but at least the first half can provide some positivity.
