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Amazon.Com Finally Turns Profitable

Web's largest retailer credits improved logistics for upswing

Amazon.com Inc. lived up to its promise and then some last week, surprising Wall Street with its first-ever profitable quarter. The Web's largest retailer eked out a net profit for the fourth quarter ended Dec. 31 of $5 million, or 1 cent per share. A year ago, Amazon suffered a fourth-quarter loss of $545 million.

The Seattle company also posted a pro forma profit, which it had pledged to do, of $35 million, or 9 cents a share. That compares with a pro forma loss of $90 million, or 25 cents per share, in the same quarter last year.

The "most visible" reason for the turnaround is improved fulfillment processes, Amazon CFO Warren Jenson said during a conference call. Amazon operated two fewer distribution centers last year compared with previous years and employed 4,000 fewer people in its fulfillment centers. Improved self-service tools reduced customer contacts per order by a third; shoppers contacted Amazon about half as many times about the whereabouts of their orders.

Amazon also reduced the amount of inventory that sat in a warehouse by 38% quarter to quarter. "Inventory improvements were driven by better allocating inventory across the network," Jenson says, meaning that there were fewer split shipments, or multiple items shipped in separate boxes from separate facilities.

The profits were driven in part by selling a record $1.12 billion in merchandise last quarter, up 15% from the previous year's fourth quarter. Sales increased partly because Amazon lowered book prices. The company also saw an 81% spike in sales in the United Kingdom, Germany, France, and Japan, which totaled $262.4 million. In an effort to spur more business, Amazon announced indefinite free shipping on orders exceeding $99, with some exclusions.

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