Citi has screened its retail coverage for Middle East exposure following this week's geopolitical escalation and identified Associated British Foods PLC (LSE:ABF) and Next PLC (LSE:NXT) as facing the sharpest gross margin headwinds in its UK universe, driven by a strengthening dollar rather than direct regional sales exposure.
Both companies source heavily in dollar-linked currencies, meaning that every leg higher in the greenback compresses the gap between what they pay for stock and what they sell it for, a dynamic that becomes more acute as oil-driven inflation keeps the dollar elevated.
ABF, whose Primark business operates on some of the tightest margins in UK retail, has the least room to absorb that cost pressure without either cutting orders or passing prices on to consumers.
Next faces a similar dynamic, though its more flexible sourcing model and stronger online margins offer a partial buffer.
Citi also flags broader second-order risks across the sector, including potential air freight delays and rising shipping costs, both of which add further pressure to supply chains already navigating a volatile macro backdrop.
Associated British Foods shares were trading at 2,128p, down 0.70%, at the time of publication. Next shares were changing hands for 13,200p, down 1.7%.