Limited Flipkart sales in India hit our growth: Walmart CEO Doug McMillon

Closure of stores, warehouses contributed to volatility in first quarter: McMillon

Walmart, the world’s largest retailer, said on Tuesday that limited operations of Flipkart in India for a portion of the first quarter negatively affected the growth of its international business.
 

This was because of the government’s regulation allowing e-commerce firms to only sell essential items during the lockdown to contain Covid-19. However, e-commerce contributed 9 per cent of total segment net sales of Walmart International, the segment that consists of the retail giant’s operations outside the US, was led by growth in China, Canada, the UK, and Mexico.
 

“The closure of stores and warehouses in some of our markets contributed to volatility in sales for the quarter and we expect even more in Q2,” said Doug McMillon, president and chief executive officer, Walmart, during a conference call to discuss the company’s first-quarter earnings results for the fiscal year 2021.

“For instance, the Flipkart business was limited by government regulation to selling only essential items for several weeks, and in South Africa a large number of stores were closed,” he said. Sales were positive in nine of 10 markets, including the major markets of Mexico, China, Canada and the UK. They were partially offset by the closure of stores or e-commerce operations in markets including India, South Africa and Central America.
 

“But broadly speaking, in each market our teams are stepping up to serve customers and help their communities,” said McMillon. In the first quarter of FY21, net sales of Walmart International, increased 3.4 per cent on a reported basis to $29.8 billion compared to $28.8 billion in Q1FY20. It increased 7.8 per cent in constant currency to $31.0 billion.
 

In the first quarter, Walmart International’s gross profit rate increased 10 basis points on a reported basis primarily because of the company’s Flipkart business.

This was partially offset by an outsized change in mix towards lower margin categories and formats in response to Covid-19. Walmart acquired Flipkart in 2018 for $16 billion.

The company said its overall net sales and operating results were significantly affected by the outbreak of Covid-19. Walmart’s total revenue was $134.6 billion, an increase of $10.7 billion, or 8.6 per cent for Q1FY21. Excluding currency, total revenue would have increased 9.7 per cent to reach $135.9 billion.

Thanks to the continued strength of the Walmart.com brand, the company said it will discontinue Jet.com. The acquisition of American e-commerce firm Jet.com nearly four years ago was critical to accelerating its omni strategy.
 

The operating income of Walmart International increased 9.2 per cent on a reported basis and 15.6 per cent in constant currency. The effects of changes in currency rates negatively affected operating income by approximately $47 million. Growth for Walmex and Canada, along with the effects of the company’s Flipkart business in India, were partially offset by a decline for supermarket retailer Asda in the UK. and China.

Return on investment for Walmart was 13.4 per cent and 14.5 per cent for the trailing twelve months ended April 30, 2020 and 2019, respectively. The decrease was primarily due to the decrease in operating income because of the dilution from Flipkart and business restructuring charges recorded in fiscal 2020, as well as the increase in average total assets due to the Flipkart’s acquisition.