Amazon 2Q Sales Up, Profits Down said its sales for the second quarter, which ended June 30, were up 29%.

In the press release Amazon released yesterday, the company highlighted a bunch of positives: Like that North American sales were up 32%, International sales grew, and sales of Kindle (pardon the pun) were on fire.

While the headline of the press release was all about Amazon’s wonderful year-over-year sales results, the body doesn’t tell the entire story of what’s up in Seattle. Let’s take a deeper look into Amazon’s numbers:

  • Net income decreased 96% to $7 million in the second quarter, or $0.01 per diluted share, compared with net income of $191 million, or $0.41 per diluted share, in second quarter 2011. The second quarter 2012 includes $65 million of estimated net loss related to the acquisition and integration of Kiva Systems.
  • Free cash flow decreased 40% to $1.10 billion for the trailing twelve months, compared with $1.83 billion for the trailing twelve months ended June 30, 2011.
  • (Third-quarter) operating income (loss) is expected to be between $(350) million and $(50) million, down from $79 million in the comparable prior year period.

According to the release, “this guidance includes approximately $275 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.”

Those investments are plentiful: Amazon has been building and purchasing several fulfillment centers in urban areas as it looks to bring ecommerce to new heights. It has been speculated that Amazon is using those real estate investments to offer same-day delivery service to its customers.

Mark Harding, an analyst at JMP Securities, told Bloomberg Businessweek that the third-quarter outlook includes costs associated with the fulfillment centers it has already opened this year, which take time to stock, staff and reach scale.

“When you add on additional capacity so quickly, it takes a little bit of time for that additional volume to run through those fulfillment centers and scale up,” Harding told Bloomberg Businessweek.

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