“Q3 net sales are expected to be between $197 billion and $202 billion.”

In context

“Brian Olsavsky (CFO): Thanks, Andy. Starting with our top-line financial results, worldwide revenue was $200.6 billion, a 20% increase year-over-year, excluding the impact of foreign exchange. These results include the timing shift of Prime Day into Q2 for most of our largest countries, including the U.S. In Q2, we reported worldwide operating income of $27.5 billion. This includes the benefit from two items that reduced expenses by approximately $1.2 billion during the quarter. First, we received tariff-related refunds of approximately $600 million. This is included in our North America segment and represents the significant majority of refunds we expect to receive. Second, we recorded a separate benefit of approximately $600 million related to the change in fair value measurement of energy contracts subject to derivative accounting. This primarily impacts the AWS segment. These energy contracts are to secure electricity supply for existing and future operations. Certain terms in these contracts cause them to be subject to derivative accounting. Derivatives are measured at fair value each reporting period, and changes in fair value measurements will create unrealized gains and losses recorded within operating expenses on our statements of operations. While the impact of these fair value measurements can vary, these adjustments have not been significant in prior quarters. Moving on to our segment results. In the North America segment, second quarter revenue was $116.2 billion, an increase of 16% year-over-year. International segment revenue was $42.2 billion, an increase of 15% year-over-year, excluding the impact of foreign exchange. Worldwide paid units grew 17% year-over-year. Prime remains a key pillar of our business, and our double-digit year-over-year membership growth reflects the value our offerings deliver at scale. We saw broad-based momentum across the inputs that drive our customer experience, including new selection, sharp prices, and fast delivery. Shifting to profitability, North America segment operating income was $9.1 billion with an operating margin of 7.9%. International segment operating income was $1.7 billion with an operating margin of 4.1%. In our fulfillment network, we made progress optimizing inventory placement, shortening shipping distances, reducing touches per package, and improving consolidation rates. We're expanding our deployment of robotics and automation, which have been integral to our operations for decades. We're retrofitting our facilities with our latest generation technology, and we expect to more than double our fleet of robotic arms, like Cardinal and Sparrow, in 2026. We continue to lower our overall cost to serve, even as we face heightened transportation costs driven by fuel inflation from the conflict in the Middle East and higher line haul rates from driver capacity limitations. Excluding the impact of higher fuel and line haul rates, shipping costs grew more slowly than worldwide unit growth at a pace that is relatively consistent with last quarter. On the operating income side, the impact of these higher costs is partially offset by our FBA fuel and logistics surcharge that was implemented in April. Looking ahead, we see meaningful opportunities to further enhance productivity across our global fulfillment network, all while continuing to raise the bar in delivery speed. While operating margin may fluctuate and progress may not always be linear, we take a deliberate approach to achieving sustained long-term improvement in our cost to serve. Moving to the AWS segment, revenue was $42.2 billion, up 36.7% year-over-year, driven by both core and AI services. AWS now has an annualized revenue run rate of $169 billion. Customers continue to increase cloud migrations and scale up their use of AWS core services. Increasingly, customers seeking the full benefits of AI are accelerating their transition to the cloud. We see a strong linkage between AI spend and core growth. As customers invest in AI, we see a corresponding increase in core consumption. We expect this relationship to strengthen over time as more AI workloads move into full-scale production and drive additional demand for our core services. AWS operating income was $16.6 billion, which reflects our strong growth, coupled with our focus on driving efficiencies across the business. Our investments in software and process improvements optimize server capacity and help to develop a more efficient network using our lower cost custom silicon and custom network gear. Now turning to our cash CapEx, which is $53.1 billion in Q2. This primarily relates to AWS and generative AI as we invest to support strong customer demand. We'll continue to make significant investments, especially in generative AI, as we believe it to be a massive opportunity with the potential to drive long-term revenue and free cash flow. Before moving on to guidance, I'll briefly touch on the impact from the tariff-related refunds on our results. We are participating in the tariff refund process, as I mentioned earlier, we received approximately $600 million in Q2. The amount is limited for a couple of reasons. First, our teams did a lot of work forward buying and pre-positioning inventory to avoid tariff costs. Second, we are not the importer of record for the large majority of items sold in our store, given suppliers typically handle imports and pay relevant tariffs. In cases where we did see an increase in cost due to tariffs, we largely absorbed these costs rather than pass them on to customers. You can see that in how we stayed very sharp in our price throughout the last year. With our product prices on average 14% less than other retailers, according to third-party research firm, Profitero. We've identified a limited set of circumstances where we can trace that we passed specific import charges on to customers. When we receive those refunds, we will proactively contact affected customers and automatically issue refunds to them. Otherwise, like other large retailers, we'll utilize refunds to continue to invest in low prices for customers. I'll finish with our financial guidance. Q3 net sales are expected to be between $197 billion and $202 billion. I'll call out two areas that are driving the sequential deceleration in net sales growth from Q2 to Q3. First, Prime Day timing shifted this year with the sales event occurring in Q2 for most of our large countries, including the U.S. In 2025, Prime Day was entirely in Q3. Excluding the impact of Prime Day in both 2025 and 2026, third quarter 2026 year-over-year growth would have been nearly 400 basis points higher. We recognize the timing shift of Prime Day creates some noise in the modeling of our financial results. However, after adjusting for Prime Day, as we look across our stores business heading into Q3, we see strong customer engagement, growth, and a continuation of the trends that we have seen in the first half of the year. Second, the Q3 guidance anticipates an unfavorable impact of approximately 80 basis points from the year-over-year changes in foreign exchange rates based on current rates. Q3 operating income is expected to be between $22.5 billion and $26.5 billion. I want to thank our teams across the company for their hard work and focus on customers. We'll continue to work to deliver more value to the broad range of customers we serve across each of our businesses, which is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.”