Why Myer Holdings Ltd shares could rocket this week

Myer Holdings Ltd (ASX:MYR) could surprise investors this week.

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Often derided as old-fashioned and uncompetitive in the modern retail world shares in Myer Holdings Ltd (ASX: MYR) have trended downhill over the past few years as the stores struggled to attract shoppers mainly due to under-investment from its old management team.

The result was falling revenues, earnings and margins over the 8-year tenure of old CEO Bernie Brooks who finally left the job and store network in March 2015, with both appearing completely out of touch.

The new CEO, Richard Umbers, though appears to be getting Myer back on track and with same-store sales up 3.3% for the 26 weeks to 23 January 2016 the group is due to report its full year results on September 15.

The new CEO has implemented a New Myer strategy that involves improving customer service and importantly getting brands within the department stores that are popular enough to actually draw shoppers in. Topshop Topman has reportedly been particularly successful, with other brands like Veronika Maine leading the 'wanted brands' strategy.

The group has also been prioritising investment in its flagship stores and is cycling off a multi-year base of underwhelming performance and sales under the previous CEO.

Large short interest

It's also notable that heading into the September 15 results Myer has around 15% of its stock short sold with hedge funds gambling on the group posting disappointing results. I expect Myer may beat the low expectations and the stock could climb in response as some short sellers close positions and other investors simply buy into the turnaround story.

Outlook

Today the stock sells for $1.28 and while I think it may have some short-term upside it's medium term outlook is still average at best due to the competitive environment and years of underinvestment that have left the new boss with an uphill task. I'm not a buyer of Myer shares, although I will take a close look at how this turnaround story is tracking.

Smiggle ahead

Another retailer due to report shortly is Premier Investment Limited (ASX: PMV) as the operator of the Dotti, Just Jeans, Peter Alexander and Smiggle retail brands among others. Investors have high expectations for its results with the stock trading on around 28x trailing earnings when selling for $15.94. It will need to deliver a strong result to justify this valuation with great expectations around the overseas growth potential of its Smiggle's children's stationery business. I wouldn't be surprised to see Premier Investments stock head in the opposite direction to Myer when it reveals its own full year results as it is priced for an outstanding result and outlook.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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