The world’s largest retailer Walmart has said the acquisition of e-commerce firm Flipkart for $16 billion negatively affected its net income in FY19 and it will continue in FY20 as well.
“We began consolidating Flipkart’s results in the third quarter of fiscal 2019, using a one-month lag. The ongoing operations negatively affected fiscal 2019 net income and this will continue in fiscal 2020,” Walmart said in its annual financial report.
The Arkansas-based firm, which competes with US rival Amazon, posted $514 billion in revenue for FY19 compared to $500 billion in the previous financial year, growth of 2.8 percent. However, the growth was slower when compared with the previous financial year when the company grew 3 percent. The gross profit rate decreased 18 basis points in FY19. The decrease was due to the mixed effects of Walmart’s growing e-commerce businesses, the consolidation of Flipkart and its plan-pricing strategy, and increased transportation expenses.
Also, Walmart’s effective income tax rate was 37.4 percent for FY19 compared to 30.4 percent in the previous year. Although the US statutory rate was lowered due to the tax cuts and Jobs Act of 2017, Walmart saw an increase in effective income tax rate owing to various factors, including the sale of the majority stake in Walmart Brazil. As a result, Walmart reported $7.2 billion in consolidated net income in FY19 as compared to $10.5 billion in FY18, a decrease of $3.3 billion. The earnings per share (EPS) was $2.26 in FY19 compared to $3.28 in FY18.
Walmart also saw its total long-term debt increasing to $11.6 billion because of the issuance of long-term debt to fund a portion of the purchase price of Flipkart and for general corporate purposes.
Walmart said it had acquired 81 percent of the outstanding shares of Flipkart in August 2018 for a cash consideration of about $16 billion. The total assets of Flipkart were worth $24.1 billion, of which $13.6 billion were in ‘goodwill’, which is an intangible asset associated with the purchase of one company by another and the anticipated growth.
Walmart said its future operating results in various countries, including India could also be negatively affected by a variety of factors. These include political instability, local and global economic conditions, legal and regulatory constraints. The other factors include restrictive governmental actions such as trade protection measures, tax regulations and laws and regulations regarding consumer and data protection.―Business Standard