Flipkart’s impact on Walmart’s bottom line is worse than initially thought

Shaking it up.
Shaking it up.
Image: REUTERS/Jose Cabezas
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The impact of the Flipkart acquisition on Walmart’s finances may be worse than initially estimated.

In its revised earnings guidance on Oct. 16, the US firm lowered the outlook for its adjusted earnings per share (EPS) in fiscal 2019 from $4.90 to $5.05 earlier, to $4.65 to $4.80.

“FY20 EPS is expected to decline by a low single-digit percentage range versus FY19 adjusted EPS. Excluding Flipkart, EPS is expected to increase by a low- to mid-single-digit percentage range versus FY19 adjusted EPS,” Walmart said in a statement on Oct. 16. The company also expects its consolidated operating income to “decline by a low-single-digit percentage range.”

The new guidance follows the retailer’s biggest acquisition ever. In May, the Bentonville-based firm agreed to buy a 77% stake in the Bengaluru-based e-commerce major Flipkart for $16 billion. The deal was finally concluded on Aug. 18.

At the time of that announcement, Walmart had estimated a negative impact of $0.25-$0.30 on EPS for fiscal 2019. Now it figures the impact will be worse.

However, the acquisition is expected to give the US retailing giant a bigger play in India’s $680 billion retail market. “India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading the transformation of e-commerce in the market,” Doug McMillon, Walmart president and CEO, had said in May while announcing the acquisition.

India’s e-commerce industry has a turnover of $27 billion, which is estimated to cross $73 billion by 2022, representing nearly 5.7% of its overall retail sales. Walmart already has a presence in the country’s Rs6,800 crore wholesale sector.