High street chain Next has revealed a £15 million cost hit from the Iran conflict and warned it may need to hike prices if the war is prolonged.
The fashion and homewares retailer said it had set aside the cash to cover additional costs for fuel and air freight because of shipping disruption and soaring oil prices, but that the impact so far can be offset by savings elsewhere in the business.
It cautioned the conflict was already seeing sales fall sharply across the Middle East – a region which accounts for around 6% of annual sales – and is likely to impact on costs, selling prices and consumer demand across the wider group as it rages on.
Chief executive Lord Simon Wolfson told the Press Association he is currently working on the basis that disruption from the war lasts for three months, but stressed if the conflict is more prolonged “the likelihood is that we are going to see price increases and supressed demand”.
He said it could increase UK prices by less than 2% in the summer if the war continues and costs remain at current levels, but cautioned in the event of a longer-lasting war and steep manufacturing and shipping costs, Next may be forced to push through price hikes of between 5% to 10% from the autumn.
It is facing a potential manufacturing cost crunch, with worries that higher oil and energy prices will make materials significantly more expensive.
The warnings come as Next reported better-than-expected annual profits, up 14.5% at £1.16 billion on a pro forma 52-week basis and hiked its earnings outlook for the year ahead to £1.21 billion, though this is based on the Iran war being resolved before the summer.
Lord Wolfson said: “We have accounted for £15 million of additional costs that are likely to arise from the conflict, such as fuel and air freight, on the assumption that the disruption lasts for three months.
“These costs have been offset by savings elsewhere, so do not affect our guidance.
“Beyond the next three months, if we see these costs persist, then we will begin to pass costs through as higher pricing – but for today that remains a contingency, not a plan.”
Next said sales in its overseas business were already being affected by the Iran war and cut its guidance for international turnover to 14.3% for the current financial year, down from 16.5% previously forecast.
Sales in the Middle East are running around 10% to 20% lower since the war started on February 28, Lord Wolfson said.
But it increased its full-year guidance for UK sales from 1.6% to 2.2% thanks to an “encouraging sales performance” in the first eight weeks of the financial year.
The group is expecting overall annual sales across the business to rise by 4.5%, in line with previous guidance for 2026-27.
Its profit outlook is £8 million more than previously forecast thanks to better-than-expected full price sales in January and an improved end-of-season clearance.
But it cautioned the Iran war could derail consumer demand and lead to higher costs.
Lord Wolfson said: “As yet, we have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand.
“Much will depend on how long the conflict persists, and how much permanent damage is done to the world’s energy infrastructure.”
He added: “If the conflict persists, the costs are likely to be reflected in higher prices to consumers and disruption to our supply chain, both of which are likely to suppress sales.”
The Tory peer told PA the Government could help businesses and consumers by adjusting duty on fuel to help ease immediate cost pressures from the war.
He said the Government would be taking higher tax in fuel duty because of the soaring costs at petrol pumps and could “balance the books” by bringing it down to ensure the tax take remains the same.
This would ensure it is able to support households and businesses without using taxpayer money.
But he stopped short of calling on the Government to scrap the planned 5p increase in fuel duty.
