Costly Sales Growth for Amazon: Spending Heavily to Expand Business

By GEOFFREY A. FOWLER

Amazon.com Inc. posted a 16% profit increase as sales continued at breakneck pace, but the Internet retailing giant also showed that it is spending heavily to expand its business.

Meanwhile, the company predicted strong growth for the current quarter, which includes the key holiday shopping season.

The Seattle company will this year open 13 new distribution centers, bringing its total to 52, said its chief financial officer, Tom Szkutak.

The company has also been offering trials of its Prime free-shipping loyalty program to more groups, including new parents and college students.

The expansion is coming at a cost for the e-commerce giant, which saw operating expenses rise 40% in the third quarter from a year earlier, continuing a trend seen in the second quarter.

"This is because of the growth we're seeing in our retail business and our Fulfillment By Amazon business," Mr. Szkutak said, referring to a program where Amazon houses and ships goods for smaller merchants.

Amazon's third-quarter results were driven by a 39% increase in sales to $7.56 billion. Most of the growth came from the company's catch-all electronics and general merchandise category, which increased sales by 68%.

Overall, income for the third quarter was $231 million, or 51 cents a share, compared with $199 million, or 45 cents a share, in the third quarter 2009.

Amazon offered no new details on sales of its Kindle e-reader or sales of digital books. In August, Amazon began shipping new versions of the Kindle, including an entry-level model that retails for $139, its lowest price yet.

Read the rest of the article at online.wsj.com