LONDON - Marks and Spencer’s latest overhaul lacks a clear price tag. The British retailer will close 100 stores in an attempt to reverse falling sales. The revamp, sped up by new Chairman Archie Norman, set the group back 514 million pounds last year. Until its longer-term cost becomes clearer, investors are better off shopping elsewhere.

After 18 months of a five-year overhaul, like-for-like sales at M&S’s food and clothing divisions are still shrinking. Britain’s largest fashion retailer said on Tuesday that it will shut an additional 40 stores on top of the 60 closures it has already announced, slashing the number of clothing outlets to about 200. The plan bears the imprint of the notably hands-on Norman, who joined a year ago and has since overhauled the top management team.

Less clear is how much the plan will cost in the longer term. M&S spent 321 million pounds on store closures alone in the 12 months to the end of March, with additional charges for information technology and logistics work. That’s on top of impairments which lopped almost 440 million pounds off pre-tax profit in the previous financial year.

While the 5 billion pound company reckons gross margins in food will be more or less flat this year, it will have to lower prices to lure shoppers. Chief Executive Steve Rowe also says the retailer needs to overhaul its website again - and build a new distribution warehouse - to meet its target of selling a third of clothing and home products online.

The uncertainty is reflected in M&S shares, which trade at around 11 times forward earnings, well below supermarkets Tesco and Sainsbury’s, which trade on 14.2 and 15 times, respectively, according to Barclays analysts. The stock has attracted the fifth-largest number of short-sellers of all UK-listed companies. That makes sense. Radical turnarounds often involve unexpected costs, and sometimes don’t work. Investors can afford to pass on M&S’s new look for now.

CONTEXT NEWS

- British high street retailer Marks and Spencer on May 23 reported pre-tax profit of 581 million pounds for the 12 months to the end of March, before factoring in the cost of closing stores and other restructuring measures.

- Statutory pre-tax profit was 66.8 million pounds, down from 176 million pounds a year earlier.

- UK like-for-like sales at the clothing and home division fell 1.9 percent and UK food sales decreased by 0.3 percent.

- The clothing chain said it spent 321 million pounds closing stores over the period. M&S will close over 100 stores by 2022 as part of a turnaround strategy led by Chief Executive Steve Rowe and Chairman Archie Norman.

- Marks and Spencer shares were up 6.6 percent to 309 pence by 0810 GMT on May 23.

(Editing by Peter Thal Larsen, Bob Cervi and Karen Kwok)

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