Next Weathers Middle East Conflict with £1.16bn Profit, Sees No Immediate Price Hike

Retailer Next has reported a £1.16bn pre-tax profit for the full year, with the Middle East conflict expected to add only £15m to fuel and air freight costs. This amount, which assumes a three-month disruption, is considered minimal and can be offset by savings elsewhere.

Chief Executive Simon Wolfson added £8m to this year's profit forecast as a mechanical read-through from last year's outcome, indicating that trading had been “encouraging” in the UK and “strong” overseas until late February.

The main concern for Next is the potential long-term impact of the conflict on supply chain resilience, freight rates, factory gate prices, and consumer demand. Wolfson emphasized that the company has no insight into the duration and implications of the conflict, stating, “As yet, we have no feel for the medium-term effects”.

If higher costs persist, Next may put up prices, but this remains “a contingency, not a plan”. The company will provide a clearer view in its first-quarter update in May.

Wolfson also offered nuanced insights, suggesting that consumer confidence may not have collapsed as much as some, like the British Retail Consortium, have claimed. He noted that UK consumers tend to react to actual higher prices, not the threat of them.

Additionally, Next's spring-summer ranges are already in stores, online, and warehouses, minimizing the immediate need for adjustments. Any increases in fabric costs or production disruptions in Asian factories would mostly affect autumn-winter ranges.

The stock market responded positively, with Next's shares rising 5% to £125.40. This resilience could indicate potential for a profit upgrade in May if the £15m in extra costs turns out to be the worst of it.

However, no retailer will be immune if the energy price shock persists and the OECD's prediction of UK economic growth of just 0.7% this year materializes.