Flipkart integration hits Walmart’s operating income in first quarter

Indian e-commerce marketplace Flipkart caused a dent in the parent Walmart Inc’s gross profit rate and operating income from its international business in first quarter this year. Walmart isn’t complaining though, saying that the full year earnings dilution is in tune with expectations and has been partially offset by deconsolidation of Brazil.

Declaring the first quarter earnings, Brett Brigs, CFO, Walmart Inc, said the company’s international operating income dipped 38% in constant currency. "A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil," he said in the management commentary statement.

Walmart reported net income for the quarter ended April 30 of $3.84 billion, or $1.33 per share, compared with $2.13 billion, or 72% a share, a year earlier. Excluding one-time charges, including unrealized gains and losses related to Walmart’s investment in JD.com, Walmart earned $1.13 a share, 11 cents ahead of analysts’ expectations.

E-commerce sales grew 37%, boosted by its home and fashion businesses, Walmart said. That was better than online sales growth of 33% a year earlier, but moderated from a 43% increase during the holiday quarter.

While the company attributed gross profit rate decline by 172 basis points primarily to Flipkart's inclusion in this year's results, all of its large international markets, including  Mexico, Canada, UK, and China, too posted a similar fall in gross profit during the quarter, said a report appearing in ET.

While the Bentonville giant assessment is that Flipkart’s acquisition will continue to weigh on expense, interest, and debt in FY20, the management remained hopeful with the team and its ability to innovate to match the customer expectations.

Judith McKenna, president and chief executive officer (CEO) of Walmart International, who has visited India earlier this month, had also praised Flipkart’s ability to leverage its homegrown innovations and make the most of synergies with Walmart as it strove to bring the next 200 million Indian shoppers online.

Walmart, which acquired Flipkart last May for over $16 billion, had indicated that fall in its gross profit rate for international business by 116 basis points in FY19 was due to Flipkart acquisition and its deep discounting strategy. It also impacted its net interest expense as it had to issue bonds to fund acquisition.

In India, as elsewhere, the Arkansas-based firm is locked in rivalry with US-based Amazon. As per a Morgan Stanley estimate, Flipkart and Amazon have been able to corner 80 per cent of total online retail sales in the country.

However, the next couple of years are expected to see slower growth as a result of tepid market conditions and the e-commerce marketplaces' compulsion to meet the new regulatory  regime.