Walmart lowers earnings outlook due to Flipkart buy; shares drop

REUTERS: Walmart Inc lowered its earnings forecast for the year on Tuesday and said its e-commerce growth next year would be slower than the current fiscal year that ends in January, sending its shares down in premarket trading.

Walmart’s earnings next year will be eroded by its acquisition of Indian e-commerce firm Flipkart in May for US$16 billion, its largest-ever deal, in order to compete with Amazon.com Inc in an important growth market.

The lower forecasts for earnings and online sales come after Walmart posted its best quarterly U.S. sales growth in a decade in August, amid lower unemployment and tax cuts this year that boosted consumers’ spending power, and hiked outlooks for full-year sales and profit.

Walmart now expects to earn between US$4.65 and US$4.80 per share for fiscal 2019 from an earlier forecast of US$4.90 and US$5.05 per share.

Shares were down 0.6 percent at US$93.25 in premarket trading, after earlier having fallen more than 2 percent.

Walmart also estimates a slower growth rate of 35 percent for its online business in the year ending in January 2020, against expectations for 40 percent growth in the current year.

Investors have been spooked in the past by slowing growth for Walmart’s U.S. e-commerce business. The company has made several efforts over the past year to boost traffic online. These include a website redesign, more online grocery offerings and acquisition of fashion brands to improve its appeal to millennial shoppers, who have typically stayed away from making purchases on the retailer’s websites.

The retailer has lately been on an acquisition spree in the U.S. online fashion space, buying online lingerie retailer Bare Necessities last week after purchasing plus-sized clothing startup Eloquii a week earlier.

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Over the years, Walmart has worked to use physical locations as distribution points for online orders of groceries and other goods, in order to retain buyers who increasingly expect quick, cheap shipping.

For fiscal 2020, Walmart said it expects comparable sales growth of 2.5 percent to 3 percent and expects earnings to decline by a low-single-digit percentage range compared to fiscal 2019 on account of Flipkart.

The retailer will address investors at its Bentonville, Arkansas headquarters starting at 9:00 a.m. ET (1300 GMT).

(Reporting by Nandita Bose in New York; Editing by Edmund Blair and Bernadette Baum)