Walmart trims 2018-19 earnings forecast on Flipkart deal
Walmart indicated that the Flipkart business may take time to turn profitable, but has ‘got a lot of levers to pull’ with Flipkart
Bengaluru: Walmart Inc., which spent $16 billion to buy a 77% stake in Flipkart earlier this year, cut its earnings forecast for this year because of losses expected at Flipkart, highlighting the challenges that the US retail giant faces in making the expensive acquisition work in the long-term.
On Tuesday, Walmart lowered its earnings forecast for the current financial year, after including the impact from the Flipkart acquisition. Walmart also predicted that its US e-commerce growth next year will be slower than the current financial year.
Walmart faces the prospect of a long-drawn-out battle against Amazon India, which closed the gap with its rival during the first leg of the Diwali season face-off last week.
Flipkart, which had set aggressive targets to more than double its gross sales during its flagship five-day Big Billion Days sale, ended up falling short of that target.
According to a company spokesperson, the company grew sales during Big Billion Days by 80% from last year.
Mint could not immediately verify the sales that Flipkart posted during Big Billion Days, but according to reports, Flipkart posted a little over $1 billion in gross sales during the five-day event.
Mint had reported on 17 August that Flipkart is targeting sales of $1.5-1.7 billion in its annual Big Billion Days sale, nearly double of what it did last year, three people aware of the online retailer’s plans said.
Mint also reported on Tuesday that Amazon India registered its best-ever performance in festive sales, which is usually dominated by Flipkart’s flagship Big Billion Days sale.
Amazon closed the gap with Flipkart during this year’s Great Indian Festival, driven by strong sales of smartphones and more significantly, exceeded its internal sales targets for its Great Indian Festival sale.
On Tuesday, Walmart said it expected its operating income during 2019-2020 to decline by a low single-digit percentage range, but added that it expected operating income to increase by a low single-digit percentage range, when excluding Flipkart in both FY19 and FY20.
Walmart also forecast that its earnings during 2019-2020 will decline by a low single digit percentage range, compared to 2018-19. It struck a bullish note during a call with investors on Tuesday, despite the near-term hit from the Flipkart acquisition.
“In India, Flipkart positions us well in a large and growing market. The Flipkart ecosystem will not only enable us to grow in India, but it will also teach us more about the future of retail,” said Walmart CEO Doug McMillon during the call with investors.
Walmart, however, also indicated that the Flipkart business may take time to turn profitable.
“We are very excited about this investment (Flipkart). India is a dynamic market and we certainly intend to win there. And as you can imagine, it is our objective to be profitable (with Flipkart) over time. We’ve got a lot of levers to pull (with Flipkart),” said Walmart chief financial officer Brett Biggs.
Separately, Walmart has apparently met tax obligations of its $16 billion acquisition of Flipkart, going by an initial look at the detailed explanations provided by the US retail giant, an income tax department official has said.
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