Cost-cutting won’t cut it anymore for struggling consumer stocks

Weakness will persist for some time, analysts warn.

Cost-cutting was a dominant theme among consumer-oriented companies in the third quarter, as most companies struggled to counter the effects of a muted regional retail scene.

However, trimming costs is simply not enough to bring these companies back to their former glory, according to a report by OCBC.

“We observed that companies focused on cutting costs, and/or continued expansion of new outlets. Yet operating expenses can only be cut to a certain degree. In addition to a weaker topline, this often resulted in a prolonged period of unimpressive bottom-line performance for some companies,” OCBC noted.

Among the cost cutters are OSIM and BreadTalk, which closed a number of underperforming stores. Meanwhile, Petra Foods sold its Singapore distribution business earlier in the year, and Thai Bev decided to consolidate its existing Chang beer variants into a single brand for better brand positioning. 

OCBC said that revenue and profit weakness will persist for consumer stocks as long as regional economic growth remains sluggish.

“It is now all too familiar that the regional economic conditions have been challenging, and the retail environment across the markets has been muted as well. Unfavourable exchange rates relative to the reporting currency also affected earnings to some extent,” said OCBC.