NEW YORK (CNN/Money) - Amazon.com Inc. posted a narrower second-quarter loss Tuesday, topping forecasts on Wall Street, as strong book sales helped boost the retailer's bottom line.

The world's biggest Internet retailer also said it will expense all stock options starting next year, a move company officials acknowledged would have a negative impact on results.

"The best thing about expensing stock options Is that it opens the door to more carefully crafted equity incentives," CEO Jeff Bezos told investors during a conference call after disclosing results.

Seattle-based Amazon reported a loss of $4 million, or a penny a share, excluding one-time items for the quarter, compared with a loss of $58 million, or 16 cents a share, a year earlier. Analysts polled by earnings tracker First Call had forecast a loss of 6 cents a share.

Including all charges and items, the company had a net loss of $94 million, or 25 cents a share, versus a net loss of $168 million, or 47 cents a share, a year earlier.

Sales jumped 21 percent to $806 million from $668 million.

Seattle-based Amazon's (AMZN: Research, Estimates) shares sank 52 cents to $14.03 in after-hours trading Tuesday, despite the better-than-expected results. The stock has recovered more than 100 percent since last September, when Internet stocks were struggling with the collapse of technology demand and worries over the recent terrorist attacks.

While it has improved its results, Amazon has been unable to maintain profitability despite heavy streamlining and cost-cutting, as it continually invests in expanding the business.

Bezos told investors that the company has been able to cut costs as it continues to streamline, helping to spur sales. The company's latest offer of $49 shipping and handling charges on big orders is driving business, but will hurt third quarter margins.

The company has closed distribution centers, instead entering partnerships with established brick-and-mortar retailers such as Toys R Us (TOY: Research, Estimates) and Target. (TGT: Research, Estimates)

Sales in the company's core books, music and DVD/Video division grew 6 percent to $412 million and operating profit increased 26 percent to $49 million. The company's electronics, tools and kitchen sales increased 16 percent from a year ago, but mainly as a result of lower pricing. The segment's operating losses declined 55 percent to $18 million.

Amazon has been steadily expanding its product line into kitchen items, computers and other items, and said Tuesday that its used merchandise segment experienced rapid growth in the second quarter.

However, the books business continues to be the strongest sales driver.

"What I can tell you is in the first few weeks of this quarter...we are continuing to see good books unit growth," Bezos said.

Over the last four quarters, Amazon generated $16 million in cash, compared with a negative $270 million cash flow for the comparable period a year ago.

For the full year, Amazon expects a profit from its operations on sales growth of about 18 percent. The company also expects to be generating more cash than it uses up by year-end.