Amazon will already see declines due to the $15 minimum wage hike, analysts say
Amazon.com Inc.’s retail operating income could take a 5% hit from shipping cost inflation if the U.S. Postal Service’s proposed price hikes go into effect, according to calculations by Barclays analysts.
On Wednesday, the USPS suggested raising the price of sending a small flat-rate box to $7.90 from $7.20; increasing a medium flat-rate box to $14.35 from $13.65; and charging $19.95 to send a large flat-rate box, up from $18.90.
“Our math …suggests Amazon will have 5% lower retail operating income from this shipping cost inflation, if we assume there are no offsetting factors,” Barclays said.
The changes would go into effect on Jan. 27, 2019.
“Specifically, the USPS shipping rates for small and medium boxes, typically used by e-commerce companies, are proposed to be increased by 10% and 5% respectively,” Barclays analysts led by Ross Sandler wrote. “[T]he price increases for packages suggested by USPS this year are higher than in prior years.”
“If other Amazon shipping partners like UPS UPS, +1.65% , FedEx FDX, +1.65% , On-Trac, etc. raise their prices, which has happened in the past (but we are currently not factoring in), every 5% hike for last mile would weigh down operating income by an additional 3%, all else constant,” the note said.
President Trump said the USPS is Amazon’s AMZN, +4.03% “delivery boy” in a tweet earlier this year, and blamed the e-commerce giant for its billion-dollar-plus losses in the second fiscal quarter.
However, the USPS said it’s actually government policy that’s hurting the group’s finances. The USPS said “legislative and regulatory changes” would be necessary for financial stability.
“To be clear, our current estimates already factor in [a] shipping cost increase by a modest level, consistent with prior years,” Barclays said. “However, the steeper increase proposed for 2019 could weigh further on Amazon’s FY19 profitability.”
In a separate note, Barclays forecast that Amazon shares could take a hit after third-quarter earnings if they are in line with guidance and forecast below expectations. And in the fourth-quarter, the $15 minimum wage hike will add about $310 million to expenses.
Barclays analysts think the minimum wage hike is just one of a few coming initiatives that could impact operating margin expansion.
Barclays rates Amazon shares overweight with a $2,100 price target.
Amazon stock has rallied 53% for the year to date. The Amplify Online Retail ETF IBUY, +3.38% has gained 11.5%, while the S&P 500 index SPX, +1.42% is up 3.5% for 2018 so far.
