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Next has estimated that the ongoing conflict in the Middle East will lead to a £47m cost hit, as disruption to global transport networks and rising fuel prices have led to significantly higher expenses for both its UK and international operations.
International costs are forecast to rise by £27m, primarily driven by increased air freight and local distribution expenses.
Within the UK, the company expects a £20m impact linked to inbound bulk freight, internal distribution, and higher energy prices across its domestic infrastructure.
The group’s previous guidance set in March estimated the total cost of the conflict to be around £15m, though this only covered the first three months of the war.
In light of the conflict’s developments, Next has now updated its guidance for the remainder of the year based on the assumption that fuel costs remain at their current levels and that “disruption in factories and global transport networks neither worsen or improve”.
It comes as full price sales in the first quarter rose by 6.2%, £28m ahead of Next’s previous forecast, which in turn added £8m to its profit, increasing the group’s full-year guidance to £1.2bn.
UK sales were better than expected and rose by 4.4%, though growth in the region weakened as it moved into a period when last year’s sales began to strengthen. Total international sales rose by 12.8%, but were down by 8.9% in weeks 6-8 due to the ongoing conflict.
Looking ahead, the group said it plans to mitigate the ongoing cost increases caused by the conflict in the Middle East with a combination of moderate price increases in some international territories and operational cost savings.
From May, price increases will be introduced overseas to help offset these costs, adding that price increases outside Europe will vary by country, but will be “no more” than +8% in any territory.
In the UK, costs will be offset by cost savings and margin gains, but based on current estimates Next said it does not anticipate raising UK prices over and above the 0.6% it forecast at the beginning of the year.
