MEMPHIS — Third quarter numbers are in for the nation’s largest retailer and it appears the Pay-On-Scan (POS) initiative is making some modest headway into the retailer’s vast inventory. At the close of the quarter (May 8) the chain had $61.3 million in inventory under POS arrangements.
“We continue to actively negotiate with our vendors to increase the use of POS arrangements,” the company stated in its quarterly filing with the Securities and Exchange Commission (SEC).
AutoZone had approximately $1.58 billion in total inventory at the close of the quarter. The distributor hopes to have nearly $200 million in POS inventory by the end of the fiscal year. Gross inventory per store declined to $447,000 versus last year’s $469,000.
Earlier this year the SEC approved AutoZone’s POS accounting methods. As a result, the gross amount of sales and the cost of goods sold are both being reported. And the inventory on accounts payable related to all POS inventory has been removed from AutoZone’s balance sheet.
You might recall that POS is an initiative the chain launched in January 2003 in an attempt to have suppliers own their inventories until the products are scanned at the checkout counter. The process was adopted from other industries, and it has drawn resistance from manufacturers who believe the related expense will be too burdensome for their businesses.
AutoZone expects to achieve 100 percent accounts payable to inventory. For the third quarter, that percentage was at 82 percent, up from 73 percent during the same period last year.
Net sales for the 36 weeks ended May 8 were $3.8 billion or 4.8 percent over net sales of $3.6 billion for the same period in the prior fiscal year. Gross profit for the period was $1.9 billion compared with $1.6 billion previously.
For the first three quarters AutoZone had net cash flows from operating activities of $339.7 million as compared with $277.9 million during the comparable timeframe last year. Executives expect cash flow from operating activities to increase as more vendors sign up for POS.
“Improving cash flows is the year-over-year increase in vendor payables as a result of our ability to extend payment terms with our vendors,” the company stated. “In some cases we have entered into arrangements with certain vendors and banks that, through our issuance of negotiable instruments to our vendors, the vendors can negotiate the instruments at attractive discount rates due to our credit rating.”
AutoZone has not revealed names of those vendors participating in POS, nor have they stated how many suppliers are taking part in this process. As we find out more on the progress of this initiative, we’ll keep you informed.
