NEXT Struggles to Hold UK Prices Steady as Middle East Costs Rise

British retail giant NEXT faces heightened scrutiny over its ability to protect UK shoppers from price hikes after warning of rising operational costs linked to conflict in the Middle East.

Investors view NEXT as a key barometer for the British high street and will be looking for sustained sales momentum in its upcoming earnings release.

In its May trading update, NEXT reported a 4.4% rise in UK sales over the preceding three months, but cautioned that growth was expected to slow to 1% in the second quarter due to tough year-over-year comparisons. The company will publish its half-year financial results on Wednesday, providing updated figures and insights into recent trading conditions.

NEXT also raised its projected cost impact from the Middle East conflict to £47 million in May, up sharply from the £15 million guidance issued in March.

To manage the cost pressure, the retailer planned price increases across international markets beginning in May. Cost-reduction initiatives initially allowed NEXT to avoid price increases in the UK and continental Europe, though management warned domestic pricing could change if supply chain disruptions worsen.

Since May, military escalation in the Middle East and ongoing turmoil along the Strait of Hormuz have kept maritime shipping routes disrupted and freight expenses elevated.

“The Middle East conflict casts a small shadow, accounting for 5% of total group sales, although the group plans to lessen any effects in the region through price rises and a cost-cutting exercise there,” said Richard Hunter, Head of Markets at Interactive Investor. “Closer to home, the inflationary impact of higher energy prices threatens to heighten input costs as well as crimp consumer demand. Even so, growth in the UK, which accounts for 78% of overall revenues, has been maintained by a laser focus on costs, trends, and delivery.”

Aarin Chekrie, an equity analyst at Hargreaves Lansdown, noted that NEXT has effectively streamlined operations to offset geopolitical cost pressures.

“International sales are a key driver of growth, and have recovered quickly following the initial outbreak,” Chekrie said. “But with tensions in the region rising again, we’re keen to hear how demand’s holding up. As a leader in the UK market, NEXT looks well-positioned to navigate challenging conditions better than many of its peers.”

In a wider British market where major operators like Sephora UK expanding its high-street presence are adjusting strategies to counter economic uncertainty, NEXT's operational agility remains a crucial benchmark for companies and industry as they navigate persistent cost pressures.