Walmart Inc, the world's biggest retailer, said gross profit rate and operating income in its international business fell primarily due to Flipkart's inclusion in this year's financial performance. The company, however, said full-year earnings dilution related to Flipkart is still in line with expectations.

International operating income was down 38% in constant currency and 42% on a reported basis. "A large part of the decline was due to dilution from Flipkart, which was expected, partially offset by the deconsolidation of Brazil," said Brett Biggs, CFO, Walmart Inc, in the management commentary statement while declaring its first-quarter earnings.

While Walmart's total revenues grew about 1% to $123.93 billion, international sales fell 4.9%. Gross profit rate declined 172 basis points on a reported basis, primarily due to Flipkart's inclusion in this year's results, it said in the statement. All of its large international markets -- Mexico, Canada, UK, and China – posted a fall in gross profit during the quarter.

While the Bentonville giant continues to see the impact on expense, interest, and debt due to its Flipkart acquisition, the management remained upbeat. "I continue to be excited about the opportunity with Flipkart and PhonePe. I’m impressed with the team and their ability to innovate for customers with speed," Doug McMillon, CEO, Walmart Inc, said in the statement.

Walmart acquired Flipkart last May for over $16 billion, and started consolidating its results in the third quarter of fiscal 2019, with a one-month lag.

During the fourth quarter of FY19, Walmart said the gross profit rate for its international business fell 116 basis points primarily due to Flipkart, indicating the Indian online firm's deep discounting strategy has weighed down profitability. In its FY20 guidance too, Walmart's had said consolidated operating income will decline by a low single-digit percentage range including Flipkart, but will increase by a low single-digit percentage range excluding the Indian e-commerce company.

Separately, the net interest expense for Walmart increased 28% primarily due to the company’s bond issuance related to the Flipkart transaction, the company said. At the time of acquisition, Walmart had said that it would part fund the Flipkart acquisition with debt. In June last year, the company had disclosed taking on new debt of around $16 billion to fund the acquisition, as per the filings with the US Securities and Exchange Commission (SEC). Flipkart did not reply to ET's query seeking comment.

Like most other markets, the Arkansas-based firm competes with US rival Amazon even in India. Morgan Stanley estimates that the two largest players -- Flipkart and Amazon -- dominated total online retail sales with more than 80% market share last calendar year.

Over the next two years, it expects these platforms to grow slightly slower than the overall market, given that the focus is shifting to restructure the businesses and ensure compliance with the new regulations.

For the year ending March 2018, Flipkart’s revenue stood at Rs 30,164 crore on a loss of Rs 46,895 crore, regulatory filing of its Singapore parent show.