First-quarter results: Flipkart shakes Walmart's global earnings cart

US giant's gross profit rate, operating income drop due to Flipkart's inclusion in this year's financial performance.

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Walmart acquired Flipkart last May for over $16 billion and started consolidating its results in the third quarter of fiscal 2019, with a one-month lag.
MUMBAI: Walmart Inc., the world’s biggest retailer, said gross profit rate and operating income in its international business fell in the February-April quarter, primarily due to Flipkart’s inclusion in this year’s financial performance. The company, however, said full-year earnings dilution related to Flipkart is still in line with expectations.

International operating income was down 38% in constant currency terms and 42% on a reported basis. Walmart’s financial year runs from February to January. “A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil,” Walmart CFO Brett Biggs said in the management commentary statement while declaring first-quarter earnings.

While Walmart’s total revenues grew about 1% to $123.93 billion, international sales fell 4.9%. The gross profit rate declined 172 basis points on a reported basis, primarily due to Flipkart’s inclusion in this year’s results, it said in the statement.


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Management Remains Upbeat
All of its large international markets — Mexico, Canada, the UK and China — posted a drop in gross profit during the quarter. While the Bentonville giant continues to see impact on expenses, interest and debt due to its Flipkart acquisition, management remained upbeat.

“I continue to be excited about the opportunity with Flipkart and PhonePe. I’m impressed with the team and their ability to innovate for customers with speed,” Walmart CEO Doug McMillon said in the statement. PhonePe is an online payments firm owned by Flipkart. Walmart acquired Flipkart last May for over $16 billion and started consolidating its results in the third quarter of fiscal 2019, with a one-month lag.

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In Q4 FY19, Walmart said the gross profit rate for its international business fell 116 basis points primarily due to Flipkart, indicating the Indian online firm’s deep-discounting strategy had weighed down profitability. In its FY20 guidance too, Walmart had said consolidated operating income will decline by a low single-digit percentage range including Flipkart, but will increase by a low single-digit percentage range excluding the Indian ecommerce company.

Flipkart’s main rival in India is Amazon. Morgan Stanley estimates that the two dominated total online retail sales with over 80% market share last calendar. Over the next two years, it expects these platforms to grow slightly slower than the overall market, given that the focus is shifting to restructuring.
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