Companies Start to Lean More on Cost Savings Amid Persistent Inflation

Companies are taking steps to cut costs and improve efficiency after many relied more heavily on price increases in recent quarters to offset inflation and bolster their profits.

Inflation, at 8.3% in April, was at a nearly 40-year high, and companies are being squeezed by bad reputations in global supply chains, higher commodity prices and a tight labor market. chop. Meanwhile, consumer sentiment has worsened in recent months as prices of items ranging from gas to groceries have increased and demand for products with larger fare, including mattresses. and equipment, has reduced.

According to data provider S&P Global Market Intelligence, operating costs at U.S. investment-grade non-financial firms — there are 442 — in the fourth quarter rose 23% from a year earlier, to a total plus $2.75 trillion, according to data provider S&P Global Market Intelligence. These companies, on average, spent 83.5% of their total revenue on operating expenses during the quarter, the most in a year, according to S&P. The increase reflects rising wages, energy, inventory and rent costs.

Companies that have responded to rising costs with higher prices may soon face resistance from inflation-weary consumers. When that happens, companies are often more geared toward improving efficiency or saving costs to maintain their profit margins and meet the guidance they’ve given investors, Michael “You get to that point eventually,” says Heric, a partner at consulting firm Bain & Co..

According to Gartner, 20% of CFOs and their deputies, including the vice president of finance, are planning to cut costs over the next three months through the end of July in response to inflation.,

in May surveyed financial executives at more than 180 companies with annual sales between $500 million and $100 billion. That number could double in the fourth quarter if current levels of inflation continue, Gartner said.

Company advisers say that while companies have taken emergency, cost-cutting measures across the board in the early days of the pandemic, they are taking less drastic measures aimed at reducing costs. provide long-term savings.

Corporate earnings results are starting to show drag on profitability, with Target Corp.

and Walmart Inc.

—The nation’s two largest retailers — both reported lower-than-expected earnings. Earlier this month Target said it would incur higher shipping and fuel costs instead of passing it on to customers. Walmart also said rising costs have hit its fiscal first-quarter profit, and it hopes to ease some of the pressure through negotiations with its suppliers.

Businesses include the Dine Brands Global restaurant chain franchise Inc.

and retailers The Container Store Group Inc.

and 1-800-Flowers.com Inc.

have identified or implemented cost savings and are looking to streamline their operations through changes both large and small. Some are looking to reduce delivery costs or invest in automation. Others are considering more mundane changes, such as installing energy-efficient light bulbs or upgrading the phone system.

“Companies are starting to compile a list of leverages they can pull,” said Alexander Bant, financial research director at Gartner Inc., a consulting firm. While most companies have not yet adopted large-scale cost-cutting plans, many are outlining the potential savings they could reap in areas such as Mr. Bant, said Mr. Bant. marketing, sales and real estate.

Glendale, California-based Dine Brands, which owns the Applebee’s and IHOP brands, has put together a list of 140 ideas to cut costs with the help of specific brand task forces including suppliers, distributors, franchisees and members of its operations team, said Chief Financial Officer Vance Chang. The groups were formed years ago, but their work was suspended in 2020 and 2021 due to Dine Brands’ focus on navigating the pandemic.

Among the ideas the company has come up with: testing a robot to serve guests or operate a fryer. Others include asking its employees to order tablets and order energy-efficient light bulbs, Mr. Chang said. Dine Brands operates on a franchise basis, which means that individual restaurant owners make many of their own financial decisions.

Over the past quarter, Dine Brands franchise partners have increased their prices by an average of 5% to 8%. Mr. Chang said the price increase was enough to offset most of the increase in food prices of about 20%. “Pricing doesn’t happen in a vacuum,” he said. The company’s net income for the first quarter fell 3% from a year earlier, to $24.3 million.

Jody Foldesy, managing director and senior partner at Boston Consulting Group, says companies have recovered many of the expenses they eliminated in the spring of 2020 as the economy recovered from the turmoil. caused by the pandemic. Companies looking to offset inflation today are largely focused on implementing existing plans to improve efficiency longer-term, or cut discretionary costs like travel, said Foldesy. or software.

1-800-Flowers says it is aiming to cut labor and transportation costs, including investing in automation. According to Bill Shea, the company that sells gifts including chocolate-covered strawberries and flowers, is looking to reduce delivery distances so it can qualify for next-day overland shipping, which is cheaper than shipping. by air the next day, the company’s chief financial officer.

Mr. Shea expects transportation costs to remain high for the foreseeable future. “It was really a big operation to save on labor and freight costs,” said Mr. Shea.

Net sales at 1-800-Flowers fell 1% in the quarter ended March 27, to $469.6 million, Shea said. The company reported a net loss of $23.4 million, compared with a profit of $1.4 million a year earlier. Its average fare is up about 10 percent, said Shea, due to price increases and a shift toward higher-priced goods.

Many companies have annual cost-savings programs, regardless of how the economy is doing. PerkinElmer Inc.,

The company, which makes scientific instruments, has ongoing initiatives to improve productivity and lower costs in areas such as product launches. Chief Financial Officer Jamey Mock said the business is headquartered in Waltham, Mass. has also taken steps to seek new savings, including consolidating its packages, which helps reduce shipping costs, chief financial officer Jamey Mock said.

Jeff Miller, CFO of Container Store Group.


Image:

Container store

Meanwhile, Coppell, the Texas-based Container Store, says it’s revamping the way its delivery vans are packaged, freeing up staff, and upgrading the phone system to improve customer service. , according to Jeff Miller, chief financial officer. Net sales at the Container Store fell 3% for the quarter ended April 2, to $305.5 million.

Over the past year, the company has also overhauled its promotional strategy, rewarding customers for buying more instead of applying large-scale discounts. That has resulted in promotions that are below average and above average fares, Mr. He declined to say how much the company raised prices or saved costs.

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Edmund DeMarche

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