CEO of Walmart insensitive to the new e-commerce law; full of hope for the future with Flipkart

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Walmart, the world’s largest retailer, said on Tuesday it was “disappointed with the recent change in law and the lack of consultation” regarding new e-commerce regulations in India. But, he was confident in the long term prospects of his Indian unit, Flipkart.

The Bentonville-based company, which announced its 2018-19 results on Tuesday (Walmart follows the February-January fiscal year), secured a significant lead from Flipkart in gross sales, despite the divestiture of its Brazilian unit. However, its operating profit and profitability suffer as a result of continued investments in its Indian subsidiary.

“Regarding the regulatory environment in India, we are disappointed with the recent change in law, but the team is working to ensure that we are in compliance with the new rules. We look forward to a collaborative regulatory process in the future. This will translate into a level playing field, ”said Doug McMillon, President and CEO, Walmart, in a conference call with an analyst.

The e-commerce policy change took effect on February 1. It prohibits e-commerce companies from selling products through companies in which they have a stake. Companies operating in this space also cannot earn more than 25 percent of total revenue from a single platform.

McMillon, however, said the new regulations had not shaken Walmart’s “confidence and enthusiasm” in Flipkart’s long-term prospects, as the company performed according to their expectations.

The company, he said, remained optimistic about India’s e-commerce opportunities, given the size of the market, low penetration in the retail channel and pace of growth.

“We hope to work with the government for pro-growth policies that can enable this nascent industry and domestic manufacturers, farmers and suppliers to benefit,” McMillon said.

Walmart said Flipkart is already an ecosystem that includes digital payment company PhonePe, last mile delivery systems, and fashion branches such as Myntra and Jabong.

In the past fiscal year, Flipkart has left its mark on all the financial figures of the US-based company and even had an impact on its forecast for the next fiscal year. Although it completed the overall growth in sales, the national e-commerce company continued to derive its gross margin rate, aside from its operating profit.

In the fourth quarter ended in January, Walmart International – under which Flipkart’s sales figures are reported – reported net sales of $ 32.32 billion, down 2.3% from the same period of l ‘last year. However, revenue was negatively affected by $ 1.7 billion due to cross currency movements.

“Brazil’s deconsolidation was a drag on sales in the quarter offset by the inclusion of Flipkart sales for a full quarter,” the company said in its investor presentation.

Likewise, Walmart International’s operating income fell 9.9 percent to $ 1.17 billion in the quarter. The gross margin rate also fell by 116 basis points during this period, which was largely due to Flipkart. Over the full year, the acquisition of the Indian $ 16 billion e-commerce company also pushed up Walmart’s debt-to-total capitalization ratio.

Continued investments in Flipkart also weighed on the U.S. company’s earnings outlook for 2019-20. While the company said its sales figures will be supplemented by the growth of Flipkart, its operating profit will be affected due to its investment in the Indian subsidiary.

“Mainly in the first quarter, it will be related to Flipkart. Most (of the impact on operating income) will come from Flipkart in the first and second quarters (of fiscal 20). This did not show up in our results (in the first two quarters of FY19). But, Flipkart is the biggest part of that next year, ”added McMillon.

For 2019-2020, Walmart expects its consolidated net sales to increase by 3% with a positive contribution from Flipkart. Likewise, sales of its international wing are expected to increase by around 5% in constant currencies.

However, Walmart’s operating profit is expected to decline by a small single-digit percentage due to continued investment in the Indian unit.


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