May 5th, 2025: Amazon Reports Q1 2025 Earnings, Walmart Releases an Annual Shareholder Letter, UPS Reports Q1 2025 Earnings, and Kohl’s Fires Its CEO
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It’s May 5, 2025 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Reports Q1 2025 Earnings
Walmart Releases an Annual Shareholder Letter
UPS Reports Q1 2025 Earnings
Kohl’s Fires Its CEO
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
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[PAUSE]
BUT FIRST in our shopping cart full of news….
Amazon Reports Q1 2025 Earnings
Amazon Q1 2025 Earnings: Investing in AWS and Hoping for the Best
It was the night after earnings, and all through the house. Not a tariff was stirring, not even a mouse. The sellers were hung by the chimney with care... wait a minute, that sounds bad.
Scratch that, reverse it. Let's back that up and talk about some good news:
* Amazon had and used some cash to pull forward first-party inventory to beat the tariffs (for now). (Translation: We can delay but not eliminate the oncoming train)
* Amazon has 2m+ 3P sellers which will have "all sorts of different strategies" which will help Amazon beat the tariffs. (Translation: We don't know how it will play out - but hope some of our sellers have good plans)
* Ad business growing 19% y/y off a high base: ~$14B generated in the quarter.
Bad News Spun as Good News:
* Amazon spun its high "China Direct" seller concentration (which - everyone knows it is high) as a positive saying these folks have lower costs than American resellers of Chinese products. (Translation: Our seller's post-tariff reduced margin is their "opportunity" to "take share" instead of raising prices. Yes they actually said that.)
Decent News:
* Overall revenue up 10% y/y, NA segment revenue up 8% y/y. Pretty standard really.
* Third-party selling unit mix was steady at 61%
More bad news spun as good news:
* Free cash flow decreased by 50% to $26B for the trailing twelve months (TTM), compared with $50 billion for the previous year's TTM. Why? They pulled forward all this inventory and invested so much in new chips for AWS. But this is because AWS AI efforts are "supply constrained" -- so... good news?
And finally, the tariff stuff.
How do tariffs impact Amazon?
* None of us knows.
* Has not yet affected demand.
* ASP of retail items have not yet gone up significantly yet.
What is Amazon doing about tariffs?
* Pulled forward extra first-party inventory in Q1 in response to tariffs.
* Hoping that customers trust them more than others.
* Hoping some (apparently deep-pocketed) sellers will decide to "take share" and pull-forward inventory in response to tariffs.
All in all, pretty tame earnings call with some bright spots (ads) and unknowns (retail). Grocery did get a shoutout and tried to say that regular Amazon is one of the largest grocers in the world. Partially true -- it's just a wacky wide selection!
[References:]
Our Second Story
Walmart Releases an Annual Shareholder Letter
Walmart reiterated a few important things in their annual shareholder letter, so I thought I would try and unpack "what they said" versus "what they mean" (Watson-style) in the shareholder letter.
1 - What they said: Walmart announced that by the end of 2025, 95% of Americans can get 3-hour Walmart delivery.
What they mean: If you want 3 hour delivery, you are going to have a pay a premium for it. And that is high margin business for us. How many SKUs this is for is not revealed, which is the part that ultimately matters. Still, this is a great milestone for them and shows their supply chain automation and transformation in the last few years.
2 - What they said: "Walmart says it is building a new business model."
What they mean: Our new business model happens to be Amazon's old business model. Marketplace, fulfillment services and ads seemed like such good ideas, we didn't even need ChatGPT to copy and paste the business model.
Also what they mean: Retail is difficult and low margin. What's better than someone else taking the inventory risk (Marketplace) and then pay us high-margin ad revenue (Walmart Connect ads)?
3 - What they said: "We are navigating turbulence.... and have done it other times like the pandemic, 2008 recession, post-9/11, etc. We know how to navigate turbulence."
What they mean: The fact that these are the comparable event examples means shit is starting to getting bad, and things are likely to get worse.
Also what they mean: "Uh, folks, this is your Walmart captain speaking on behalf of "Retail Airline". If you have not yet located your barf bags, now is not a bad time to pull those out. As a reminder, the brace for impact position is to stick your head between your legs."
Seriously though of the retailers Walmart is in a good position. The CEO said they wouldn’t trade their position for others and I would agree with them.
[References:]
https://www.linkedin.com/posts/ecommercestrategyconsulting_walmart-annual-shareholder-letter-retail-activity-7322586639581511680-Lgqz?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAABzTYBMEkpgbpDWbI9miv0bkNA3W2mE1I
Our Third Story
UPS Reports Q1 2025 Earnings
Summary of UPS in 2025: Make Changes Quickly. Hope for the Best, But Plan For the Worst Too.
Some very interesting insights from latest earnings call.
1 - Tariffs will hit SMBs faster than anyone else (have not been hearing this)
* Most SMB customers are single-sourced from China.
* SMB are trying to reconfigure, but large customers have first-crack at new manufacturers.
* Large customers also have the capital to pull inventory forward to beat tariffs, SMBs do not. UPS says "open question" how large companies respond to tariffs (price increase, push to suppliers, etc)
* Already seeing big growth increases from Europe, Vietnam, Thailand inbound into US as mfg volume shifts.
* Tariffs are causing customers to sell-off inventory rather than re-order; inventory levels could decline this year after increasing last year.
UPS is getting a tariff "triple-whammy" that they are trying to manage:
* China to US is most profitable trading lane.
* SMB customers are growing the fastest for UPS (DAP revenue grew 24% y/y)
* SMB customers are some of the most profitable customers for UPS (and represent 31% of volume, highest number ever)
All told, import volume is only 2% of total global daily volume so exposure is not the worst. Also UPS considers the consumer "pretty healthy"
2 - UPS aggressively reconfiguring its network to deal with Amazon ramp-down
* 60% of the Amazon volume disappearing is not profitable.
* Will remove $3.5 billion in expense this year related to this.
* Closed 11 buildings in all of 2024. Will close almost 7x (73 buildings) this by end of Q2!
* Decline in average daily volume for Feb/March was higher than expected.
* Planning aggressive US domestic margin expansion from 7% today to 9.3% by end of Q2, to more than 12% by end of 2026. Price increases and automation hey-o!
All told, UPS is working through a number of scenarios. Lessons for your business?
* Talk to your customers. Understand their plans.
* Talk to your suppliers. Ask for their help with your biggest problems. Call a summit about it.
* Plan a range of scenarios from "as dark as we can" to "the most optimistic as we can."
While UPS always publishes ranges, you never hear UPS speaking in such uncertain terms about the future. That itself is notable and should be a lesson for us all.
[References:]
https://www.linkedin.com/posts/ecommercestrategyconsulting_ups-q1-earnings-amazon-volume-decline-prompting-activity-7323311420933038083-S7mq?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAABzTYBMEkpgbpDWbI9miv0bkNA3W2mE1I
[PAUSE]
And Our Last Story
Kohl’s Fires Its CEO
The news out of Kohl’s is pretty astonishing, as reported by the company itself as well as the Wall Street Journal. Recall Kohl’s has been a huge rollercoaster the past few years trying to save itself.
Well it turns out the cavalry is not coming. The CEO they hired to turnaround the company is apparently a shyster who was steering business contracts to a former romantic interest Chandra Holt.
Talk about a bad deal.
Which would be interesting, but where have we heard the name Chandra Holt before? Why, it’s none of than the former CEO of the reboot of Beyond.com who got hired and then suddenly left a few months in.
I don’t think the company can be saved, and this is what happens when ownership convinces itself it has a spring chicken rather than chickenshit. The people who show up to turn said chickenshit into the spring chicken are often not very trustworthy to begin with. Investors should instead sell the company for the value of the inventory and real estate and find much better things to do with their time.
[References:]
https://www.wsj.com/business/retail/kohls-ceo-ashley-buchanan-fired-investigation-03936a9a?mod=hp_lead_pos3
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
ServiceNow to Boost CRM Offering With Acquisition of Logik.ai’s CPQ Solution
ServiceNow has announced its acquisition of Logik.ai, a composable configure, price, and quote (CPQ) platform, for an undisclosed amount. This is ServiceNow's third acquisition in a matter of weeks, which showcases its intent to be the AI enterprise solution. The acquisition will boost ServiceNow’s growing CRM footprint and also bolster its Industry Workflows business. It continues the company's transformation from an IT service management platform to an end-to-end enterprise platform that touches various aspects of work.
Second
Japan’s ZOZO to Acquire Fashion Shopping Platform Lyst for $154M
ZOZO has announced its intention to acquire 100% of British fashion shopping platform Lyst for $154 million in cash and cash equivalents. As part of the transaction, Lyst will become a wholly owned subsidiary of ZOZO. ZOZO is positioning the transaction as a way to transform fashion discovery through artificial intelligence. It also supports ZOZO’s international growth ambitions as it gains exposure in the US, UK, and Europe, complementing its Japanese market leadership.
Third
Yotpo Acquires Coho AI to Build AI-Powered CDP
Retention marketing platform has announced the acquisition of Coho AI, a customer data platform, for an undisclosed amount. This by itself would be normal mergers and acquisition news, yet, reportedly, Coho AI shut down in Israel after struggling to find a business model and is reportedly considering selling its intellectual property. Coho AI's team of a dozen will be joining Yotpo. Coho AI will be integrated into Yotpo's platform, enabling personalized engagement.
Link: https://www.yotpo.com/blog/coho-announcement/
Fourth
Huge Absorbs Hero Digital, Expands Capabilities
Brooklyn-based digital design agency Huge is integrating Hero Digital, a Chicago-based specialist in performance marketing and commerce. Huge is scaling its ability to deliver end-to-end solutions for clients by uniting with Hero Digital under the Huge brand. This is part of the December 2024 transaction in which Interpublic sold Huge to AEA Investors, a public equity fund.
Link: https://www.adweek.com/agencies/huge-folds-in-hero-digital-adds-ai-and-performance-marketing-muscle/
AND FINALLY …
Shein Gains UK Approval for London IPO, Awaits China Approval
Online fast-fashion marketplace Shein has reportedly secured approval from Britain's Financial Conduct Authority (FCA) for its planned initial public offering (IPO) in London. However, it still needs to obtain approvals from Chinese regulators, notably the China Securities Regulatory Commission (CSRC), for the float to proceed. The de minimis rule changes and its impact will likely impact Shein's valuation and the amount of capital it plans to raise. Could the current economic climate lead to a IPO postponement?
[PAUSE]
Did you know that RMW Commerce has another podcast? Check out The Watson Weekend for an unfiltered and lively eCommerce chat each week with me, Rick Watson, my co-host Jess Lesesky, and an array of interesting guests and topics. All focused on eCommerce. You can find the Watson Weekend by searching for it on iTunes, Spotify, or Youtube.
That’s all for this week! Till next time Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is Podcast on the Fly. This podcast is produced by RMW Commerce.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
