Next has said that the war in the Middle East will add £15m to its costs on the assumption it will last three months, adding that prices will have to go up if the conflict persists beyond that.

The UK clothing and homeware retailer said it was currently offsetting the additional costs on fuel and air freight with savings elsewhere and it did not expect any affect on profits for the year ahead.

Instead, the company upped its profit guidance by £8m to £1.2bn for the year to January 2027 after better than expected sales in January this year. It said the guidance was being increased despite its expectation that sales in the Middle East, which account for 6% of group turnover, could be adversely affected until the summer.

That came after pre-tax profits rose 14.5% to £1.16bn in the year to January as sales increased by almost 11% to £7bn.

In its annual trading update, Next said of the Middle East conflict: “We have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand. Much will depend on how long the conflict persists, and how much permanent damage is done to the world’s energy infrastructure.”

Next said it had increased the amount of stock it held by 6% to give protection in the event of supply chain delays, although that was partly linked to the development of its warehouses.

Sales at the group were boosted by strong sales overseas, particularly via third-party websites such as Zalando, and from its newly acquired brands such as Cath Kidston. However, the group also increased sales in stores and online in the UK.

Next said it was focused on cutting costs, with more use of AI in its warehouse operations part of the plan for the year ahead. It said it was already using AI technology to help in sales forecasting, as well as getting the right discounts and range of sizes in stores and online.

In a lengthy report, the company said: “At Next it appears to us that AI will change people’s jobs rather than replace them, making them much more effective, and taking away many of the tasks they enjoy least. People will need to adapt and change, but Next people are generally good at that.”

It said the jobs most affected were “routine processing jobs”.

Next added: “If we are reflective of the wider economy, then those in jobs need not worry too much; the challenge will be for those looking to join the workforce.”