Walmart Q1 operating income declines 41.7% primarily due to Flipkart

Q1 operating income declines 41.7%; Walmart President and CEO Doug McMillon says he continues to be excited about the opportunity with Flipkart and PhonePe

Walmart, the world’s largest retailer, said its reported international operating income in the quarter declined 41.7 per cent and went down 37.5 per cent in constant-currency terms, primarily on account of Flipkart.

The Bentonville-based company (in Arkansas) is locked in a battle with US rival Amazon for dominance in India’s online retail market through online retailer Flipkart, which it acquired for $16 billion last year in May.

“A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil. The timing of Easter also negatively affected operating income versus last year. The full year earnings dilution related to Flipkart is still in line with expectations,” said Brett Biggs, executive vice-president and chief financial officer, Walmart Inc, about the first quarter of FY20 earnings.

Doug McMillon, president and chief executive officer, Walmart Inc, said he continued to be excited about the opportunity he saw in Flipkart and its digital payments company, PhonePe.

“I got to visit our teams in India and China a few weeks ago. I’m impressed with the team and their ability to innovate for customers with speed,” said McMillon.

He was on a crucial visit to India in April to assess the progress made by Flipkart and discuss the strategy to take on its rival Amazon, according to sources.

During the quarter, the company returned $3.7 billion to shareholders through dividends and share repurchases. Its level of share repurchases increased significantly year-on-year in Q1.

Walmart’s operating income in the US grew 5.5 per cent because the gross margin rate was better than expected due to several factors including a better merchandise mix in both stores and e-commerce, and less pressure from transportation costs, partially offset by continued price investments.

This improvement was offset by some pressure from international results, including dilution from Flipkart, said the company.

The deconsolidation of Brazil benefited the first-quarter results. Net interest expense increased 28 per cent due primarily to the company’s bond issuance related to the Flipkart transaction.

Financial services firm Morgan Stanley estimates the Indian online retail market to touch $200 billion by 2028, from about $30 billion last year.