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Amazon N.A. CE Sales Rise 33%

4/26/2006 08:03:00 AM Eastern

Seattle — First-quarter sales in the North American electronics and other general merchandise segment at Amazon.com climbed 33 percent, hitting $374 million, up from a year-ago $282 million. This business includes consumer electronics, camera, photo and office.

Media segment sales in North America in the first quarter, ended March 31, increased 17 percent, rising to $815 million, compared with $699 million in the same three months in 2005. Amazon’s media business consists of DVD retail sales and rentals, DVD/video, software, video games and game consoles.

North American segment sales in the first quarter rose 21 percent, to $1.2 billion, up from $1 billion in the prior year period.

However, operating income in North America in the first quarter slipped 6 percent, down to $62 million, compared with a $66 million year-on-year. The company’s costs for ongoing promotional efforts, cross-selling among product categories and continued free shipping for orders over $25, ate into profit over the first three months of the year, said Amazon. Gross profit margin was 27.3 percent, about the same as the 27.2 percent reported in the first three months last year.

Consolidated Amazon sales in the first quarter jumped 20 percent, reaching $2.3 billion, up from $1.9 billion in the first three months of 2005. Excluding the $94 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 25 percent, compared with the first quarter the previous year, said Amazon.

Operating income at the online retailer slipped 2 percent in the first quarter, down to $106 million from a year-ago $108 million. Excluding $8 million in impact from foreign currency rate changes, operating income grew 6 percent year-on-year, said the company.

Net income decreased 34 percent, to $51 million in the three months, compared with $78 million the prior year. The first quarter in 2005 included a $26 million gain due to the effect of accounting changes. Lower earnings primarily were attributed to costs from discount shipping and new technology.

Overall expenses in the first quarter climbed 26 percent to $441 million, up from a year-earlier $350 million. Spending on research and technology jumped 59 percent in the three months, hitting $146 million, compared with $92 million year-on-year.

“We’re pleased to see strong quarter-to-quarter sequential growth for new Amazon Prime subscriptions,” said Jeff Bezos, founder/CEO. “The sequential growth comes off our biggest holiday season ever, and one where subscriptions to Amazon Prime more than doubled from November to December.”

Introduced in February of 2005, Amazon Prime is the retailer’s first-ever membership program, where for a flat fee of $75 members get unlimited, express two-day free shipping, with no minimum purchase requirement. However, this program — which accounts for heavy use by CE products — has become a double-edged sword — attracting new business to the Amazon site, but accelerating overall shipping losses, said the company.

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