Mitigating Financial Distress for XYZ Corporation

XYZ Corporation has been experiencing declining revenues over the past two years due to increased competition and rising operational costs. The firm's current capital structure consists of 70% debt and 30% equity. XYZ is considering restructuring its capital to improve financial flexibility and reduce the risk of financial distress. The CFO proposes either a significant equity issuance to reduce debt levels or a series of cost-cutting measures to enhance profitability while maintaining the current capital structure.

Given this situation, which of the following options would be the most effective initial step for XYZ to mitigate financial distress risk?