Walmart CEO “continue to be excited” about Flipkart even as latter erodes profits

Walmart International’s operating income came down by 41.7 per cent in Q1 FY20 largely due to “dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil,” said Walmart’s EVP & CFO Brett Biggs.

Around a month after Walmart’s CEO and President Doug McMillon was left “delighted” with Flipkart’s progress during his visit to Bengaluru, the homegrown e-commerce leader and Amazon’s bitter rival has dragged down Walmart’s earnings from its international business along with a decline in its overall operating income. Walmart, which follows February-January as its financial year, recently announced its Q1 FY20 earnings.

Doug McMillon said he “continue(s) to be excited about the opportunity” with Flipkart and PhonePe and he is impressed with the team’s ability “to innovate for customers with speed,” he added in the company statement sharing Q1 results.

Walmart’s operating income from the international business came down by 41.7 per cent from $1.3 billion in Q1 FY19 to $700 million in Q1 FY20 largely due to “dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil,” said Walmart’s EVP & CFO Brett Biggs.

Walmart had acquired a 77-per cent share in Flipkart in May last year for $16 billion.

Moreover, Walmart International’s net sales also declined by 4.9 per cent to $28.8 billion in the last quarter against $30.3 billion for the same period in the last FY. Its gross profit rate was also down 172 basis points on a reported basis, “primarily due to Flipkart’s inclusion in this year’s results,” Walmart said.

Overall, Walmart’s operating income was also lowered by 4.1 per cent to $4.9 billion. However, this was “better than planned” as Walmart U.S. and Sam’s Club’s (retail warehouse clubs) positive results “were offset by the inclusion of Flipkart this year,” the company said.

Walmart U.S. grew by 5.5 per cent in its operating income to $4.1 billion from $3.9 billion in Q1 FY19 while Sam’s Club’s operating income was up by 38.8 per cent to $500 million from $300 million in Q1 FY19.

Consolidated gross profit margin declined 27 basis points versus last year due primarily to pressure in International from mix changes in some of our largest markets as well as the inclusion of Flipkart in this year’s results.

Walmart’s net interest expense increased 28 per cent “primarily due to the company’s bond issuance related to the Flipkart transaction,” Biggs said. The amount shot up from $487 million to $625 million in the previous quarter.

However, Walmart’s total revenue stood at $123.9 billion — up by $1.2 billion from Q1 FY19.

During its first quarter of the new financial year, Walmart had launched PhonePe as a payment option at Walmart’s B2B Cash & Carry stores in India along with PhonePe Super App that integrates 25 various apps in India including OYO, redBus, Goibibo etc.

Importantly, Walmart had also launched Flipkart venture capital fund to invest in early-stage startups in March this year.

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