World's biggest retailer Walmart Inc. has reported a fall in its gross profit rate and operating income in its international business in the February-April quarter. The primary reason attributed to the investment made in Flipkart in this year's financial performance. The Bentonville-based behemoth has, however, said that the years earnings dilution related to Flipkart is still as per the expectation of the company.
US retail giant Walmart has invested Rs 2,190 crore in Indian e-commerce major Flipkart amid a pitched battle with arch-rival Amazon. This is Walmart's first infusion of funds in the form of equity in the Indian company after the record $16 billion takeover. Financial daily, the Economic Times reported that Walmart's International operating income tanked 38% in constant currency terms and 42% on a reported basis. Company's financial year cycle runs from February to January. Walmart CFO Brett Biggs said, "A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil."
Announcing its first quarter result the company said "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."
Despite registering a drop in gross profit during the first quarter in countries like Mexico, Canada, the UK, and China, the management remains upbeat. Attributing the reasons for Flipkart acquisition, the company continues is witnessing the impact on expenses, interest, and debt. Walmart's top management continues to shower their praises on Flipkart executing team including largely Indians, Walmart CEO Doug McMillon said "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."
In the last quarter of the last financial year company's gross profit rate for its international business tanked 116 basis points majorly due to huge investment in Flipkart. This highlights that its deep-discounting strategy has eroded its profitability. India's e-retail domain has been in a churn with Walmart takeover of Flipkart, whose main rival in India, Amazon, is also Walmart's main rival in the US market. Flipkart is the e-tailing market leader in India with an estimated gross market valuation of $7.5 billion with Amazon close on the heels at $5 billion.