Consumer Companies’ Margins Jump 34%, But Little is Being Passed Down to Consumers
Businesses are benefiting from a slowdown in inflation, known as disinflation, which is translating into higher profits. This means that prices are increasing at a slower rate than before, providing relief for consumer companies across various sectors, including restaurants and retailers.
- In the latest quarter, consumer discretionary and staples firms in the Russell 3000 saw their average gross margin rise to 34%, with firms in the index averaging 40%.
- Companies like Bath & Body Works and AutoZone attribute their growing profitability to lower freight costs, while Dine Brands credits stabilized labor costs for margin increases (BBG).
Boon for businesses, bane for customers: With disinflation helping companies reduce costs, you’d think things would get cheaper for customers. Spoiler alert: that’s not happening. Instead, executives are channeling those savings into share buybacks. In the fourth quarter, spending on share buybacks by similar companies in the S&P 500 rose 53% and 80%, respectively, surpassing the index’s average 18% rise. The only thing dropping faster than prices seems to be our hopes for a discount.
Read: What isn’t dropping? Stocks, and here’s where banks and funds think the market is heading.
