High street fashion and homewares giant Next has disclosed a significant £15 million financial blow stemming directly from the ongoing conflict in Iran, issuing a stark warning that extended hostilities could necessitate price increases for shoppers across its stores.
Financial Impact and Contingency Plans
The retailer confirmed it has allocated this substantial sum to cover escalating expenses for critical areas such as fuel and air freight, driven by severe shipping disruptions and soaring global oil prices triggered by the Middle Eastern turmoil. However, the company emphasised that, for now, these additional costs have been successfully offset by savings implemented in other operational segments of the business, thereby not altering its immediate financial guidance.
Executive Commentary on Pricing Strategy
Chief Executive Lord Simon Wolfson outlined the company's current operational assumption, stating Next is planning based on a three-month duration for the conflict. He issued a clear caution, noting that if the war persists beyond this timeframe, the business would likely begin to transfer these mounting costs to consumers through higher retail pricing. "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," Lord Wolfson explained. "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."
Regional Sales and Broader Business Effects
The Middle East represents approximately 6% of Next's annual sales, and the company reported that growth in these markets is already being restrained by the conflict. Furthermore, Next anticipates potential impacts on costs, selling prices, and overall consumer demand across its wider global operations. The retailer has consequently revised its international turnover guidance downward to 14.3% for the current financial year, a reduction from the previously forecast 16.5%.
Contrasting Performance in Domestic Market
In a contrasting development, Next has upgraded its UK sales guidance from 1.6% to 2.2%, buoyed by what it describes as an "encouraging sales performance" during the first eight weeks of the financial year. Overall, the group maintains its expectation for total business sales to increase by 4.5%, aligning with prior guidance for the 2026-27 period.
Profit Outlook Amidst Uncertainty
Next reported better-than-expected annual profits, showing a 14.5% rise to £1.16 billion on a pro forma 52-week basis. The company has also elevated its earnings outlook for the upcoming year to £1.21 billion, an increase of £8 million from earlier forecasts, attributed to stronger full-price sales in January and an improved end-of-season clearance process. Importantly, this optimistic projection is contingent upon the Iran conflict being resolved before the summer months.
Long-Term Concerns and Supply Chain Risks
Lord Wolfson expressed significant uncertainty regarding the medium-term ramifications of the conflict, highlighting concerns over supply chain resilience, freight rates, factory gate prices, and consumer sentiment. "As yet, we have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand," he stated. "Much will depend on how long the conflict persists, and how much permanent damage is done to the world’s energy infrastructure." He further warned that a prolonged conflict would likely result in higher consumer prices and supply chain disruptions, both of which could suppress sales volumes across the business.
