Express Offering BOGOs Should Be A No-No In BMO's View

Retailers need to convince shoppers to enter their stores and buy their items by either offering a differentiated product or compelling value.

Like many other retailers, Express, Inc. EXPR is offering a buy-one-get-one free (BOGO) promotion which is a mistake, at least according to analysts at BMO Capital Markets.

In a report published Thursday, BMO's John Morris acknowledged that Express is going after a "more niche target" but he is cautious over the recent rise in promotional activity. He added that lower pricing limits the company's earnings per share upside, especially following its second quarter "BOGO $29.90 all shirts" promotion as well as an "additional 30% off clearance up to 70% off" event.

"Our datamining indicates a six point shift from the highest pricing basket into the lowest pricing basket, which will likely be a headwind to the AUR [average unit revenue]," the analyst wrote.

As such, the analyst felt it necessary to lower his second quarter earnings per share estimate to $0.17 from a previous $0.19 per share. In addition, he lowered his full year fiscal 2016 earnings per share estimate to $1.42 from a previous $1.43.

Morris rates Express with a Market Perform rating and $14 price target.