Walmart feels the pinch of Flipkart deal, sees softer earnings growth next year

Store operator Walmart (WMT) had encountered multiple challenges before making a full-fledged entry into the Indian market earlier this year. Statistics show the $16-billion buyout of local e-commerce firm Flipkart, the biggest acquisition ever by Walmart, could have long-term financial implications for the retail giant.

The investment in Flipkart, combined with potential tax obligations, is likely to impact Walmart’s financial results in the upcoming quarters. The drag on performance could extend to next year and beyond, catalyzed by other factors such as lower sales at Sam’s Club and deconsolidation of certain Latin America operations. Meanwhile, efforts are underway to expand the global customer base and retain existing customers.

The management Tuesday revised down its adjusted earnings per share outlook for fiscal 2019 to $4.65 – $4.80 from the previous outlook of $4.90 – $5.05. The company continues to expect global sales to grow 5% next year and 3% in 2020 when comparable store sales are seen rising 2.5-3%.

The drag on performance could extend to next year and beyond, catalyzed by other factors 

Meanwhile, the uptrend in e-commerce business is anticipated to continue in the near term. The US online sales are expected to gain about 40% during the remainder of the current fiscal year, aided by the recent acquisitions in the digital space including Flipkart. Going forward, however, e-commerce growth is seen easing to 35% next year.

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Walmart acquired 77% stake in Flipkart in the second quarter, in line with its long-term plan to expand online offerings internationally. The deal is termed as a strategic move by the company in its race against Amazon (AMZN) to tap the fast-growing Indian market.

Earlier today, the Arkansas-based company revealed plans to launch an exclusive store for specialty auto parts under its e-commerce arm. The store, to be operated in partnership with Advance Auto Parts (AAP), will have all kinds of auto parts including battery, lubricants and tires, which will be available in the Walmart Auto Care Centers also.

Walmart shares made decent gains in early trading Tuesday, ending the downtrend started last week. The stock has lost more than 4% since the beginning of the year.

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