Amazon (AMZN +0.26%) has seen its business grow as the world has been gripped by the coronavirus pandemic. The retailer has adjusted its operations to prioritize delivering essentials to people while having to change how its distribution warehouses operate in order to keep its workers as safe as possible.
The retail leader has been forced by circumstances to prioritize some highly sought-after items -- toilet paper, paper towels, dry goods -- as demand from consumers has shifted. Amazon has also struggled on occasion to keep needed items in stock as it prioritizes them for sale to healthcare workers. Amazon has also had to hire over 100,000 new workers as it attempts to meet the growing demand. That's a challenge under any circumstances, and it's one made even harder by the current operating environment.
All this change and the adjusted focus are likely to start being reflected in the company's Thursday, April 30, first-quarter earnings report and make the management conference call more interesting than most. Here are three things to watch.
Amazon has been practicing social distancing in its warehouses. Image source: Amazon.
1. What are the profit margins?
The product sales mix has changed for Amazon. It has been selling groceries and other essential items that are generally lower-margin items than a lot of what the retail giant normally sells.
It's possible Amazon will report significantly higher sales that are less profitable, although that's not a given. The e-tailer has deprioritized some items, but it has still been selling most of the things it regularly sells. In addition, it's important to remember that Amazon's first-quarter covers January and February -- two months not significantly impacted by the coronavirus -- and March, a month only partly impacted.
2. How much higher are costs?
Amazon has been paying its frontline workers more during this crisis. It has also increased costs to operate given the need for social distancing in its warehouses and the extra steps taken to keep its workers safe.
It's hard to know if higher costs and lower margins will lead to lower profits. Higher volume at a lower margin may offset higher expenses and lower margins.
3. What about the Q2 forecast?
While the first quarter will include some impact from COVID-19, Q2 will be much more telling. Amazon should give some guidance during its Q1 earnings call to tell investors what to expect in the company's next quarter.
Clearly, Q2 is a moving target, but with much of April behind us and most of the United States locked down, Amazon should have good insight into what the next quarter will look like.
Is the pandemic actually a growth driver for Amazon?
The coronavirus lockdowns have likely helped Amazon add customers. The company never reveals exactly how many Prime members it has, but it's very likely that the number grew by an appreciable amount as the coronavirus became a bigger part of our lives.
The current situation -- as terrible as it is -- has helped Amazon grow its customer base. That's likely to be a long-term gain for the company.
This growth has not been without pain, though. Amazon has not met every challenge, and it may have angered some of its regular customers by not being able to ship at the normally expected speeds for having some high-demand items be out of stock.
Going forward, the question is, can Amazon return to some semblance of normal? The retailer has added capacity and is now shipping a wider selection of items, but it's not meeting its normal two-day shipping window on many of the products it ships. It's still operating with challenges.
The earnings call and report should show what's next for Amazon. It's likely to contain a lot of good news for shareholders while also offering insight into what the immediate future holds for the company.
