The number of spaces to use for formatting is taken from a different location. I’m using version 1.0 and this is what I’ve done to fix it (I’m assuming your using spaces instead of tabs):
At the bottom of the editor on the right hand click “Spaces: #”:
Then a menu will appear up top. Select “Indent Using Spaces”:
Finally you can select by how many spaces you want your files to be indented.
The next time you format a file you should be able to get the spacing you configured.