Next to hike prices by up to 8% outside Europe due to Iran war costs

Next plc

Fashion and homeware chain Next is to raise prices by up to 8% in some countries outside Europe as it anticipates millions of pounds in extra costs from the US-Israel war with Iran.

The retailer said it is facing an additional £47m in costs this year due to higher fuel prices and disruption to global supply chains from the Middle East conflict.

It said it would look to hike prices in some international countries from May, but said efforts to make cost savings would mean it does not need to push through extra price increases in the UK and Europe.

Its forecast is based on the assumption that fuel costs remain around their current level, and supply chain issues neither worsen nor improve.

Fuel prices skyrocketed following the outbreak of war in the Middle East in late February, as the Strait of Hormuz, one of the world's key shipping lanes, remains effectively closed.

About a fifth of global oil and gas shipments cross the strait. Iran has vowed to keep it closed as long as the US continues its blockade of Iranian ports.

UK sales rise more than expected

Next had initially anticipated additional costs of £15m due to the war, but that only covered the first three months after the US and Israel first launched attacks on Iran.

Next increased its full-year profit forecast to £1.22bn, from £1.21bn, after full-price sales increased over its first quarter by 6.2%.

UK sales rose 4.4%, which was better than expected.

It expects to offset all of the extra £47m through measures including price increases and savings.

The company said that increased costs in the UK will be offset by "cost savings and margin gains" through better factory-gate prices.

It is not expecting to raise UK prices by more than the 0.6% it forecast at the beginning of the year.

It said the conflict caused "considerable disruption to service in the region" but trade began to recover towards the end of the quarter.

Regarding its international sales, it said they had fallen when the conflict began, adding: "Over the last few weeks we have seen significant recovery, albeit growth was not as strong as in the first five weeks of the year."

In Europe, "cost increases have been offset by currency gains, so there is no need for price increases".

"Price increases outside Europe will vary by country, but will be no more than +8% in any territory," it added.

Next has 700 stores worldwide, around 500 of which are in the UK. It also owns brands such as FatFace and Cath Kidston, and has stakes in Gap, Victoria's Secret and Reiss.

The group forecast full price sales growth of 5.0% for the full year.

Shares in Next are down 5% so far this year.

European clothes chains including H&M have warned that a prolonged Middle East conflict will push up prices and dent consumer demand.

The chief executive of the jewellery company Pandora told the BBC consumer confidence "is not that high today".

Speaking on Radio 4's Today Programme, Berta de Pablos-Barbier said consumers have less disposable income because of high inflation and interest rates.

Next has seen relatively solid performance in the current turbulent retail landscape — it saved shoe shop Russell & Bromley from collapse in a £2.5m deal earlier this year, and bought maternity clothes label Seraphine out of administration the year before.