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UPDATE: Target shares jump 20% as retailer guides stronger FY'19

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UPDATE: Target shares jump 20% as retailer guides stronger FY'19

Target Corp. shares surged by more than 20% on Aug. 21 after the retailer raised its fiscal 2019 guidance and said new tariffs on Chinese imports will not hit the company until fiscal 2020.

"The impact [of new tariffs] would be something that we realize in the first quarter 2020," Target's CEO and Chairman Brian Cornell said during an Aug. 21 call discussing the retailer's second quarter earnings.

Minneapolis-based Target boosted its expectations for fiscal 2019 adjusted EPS after beating analysts' expectations during the second quarter. Target’s shares closed up 20.58% to $103.13 on Aug. 21.

For fiscal 2019, the retailer expects adjusted EPS between $5.90 and $6.20, compared to its previous forecast of $5.75 to $6.05.

The new guidance for the year included the expected effects of 10% tariffs the U.S. will impose on some Chinese imports in September and December, Target executives said. The impending tariffs will cover consumer products including clothing, footwear, toys and electronics.

The retailer's executives are "encouraged" by the administration's decision to delay tariffs on some items until Dec. 15. But Cornell warned that continuous unpredictability in the trade environment "will present an additional layer of uncertainty and complexity as we plan our business."

The outlook change also factored in a strong first half of the year, timing changes on marketing and investment plans and other factors, Target's CFO and Executive Vice President Catherine Smith said during the call.

During the second quarter, comparable sales grew 3.4% and adjusted EPS rose 23.9% from the year-ago period. The retailer also moved certain marketing and store-related expenses to the third quarter from the second quarter. This contributed to its expectation for an accelerated depreciation rate higher than its original projection, Smith said, without providing a specific forecast.

Target also reported first quarter earnings that beat Street expectations.

Target also lowered its capital expenditure expectation for fiscal 2021 to a range between $2.5 billion and $3 billion from the $3.5 billion it expects to spend in fiscal 2019-2020. The projected cut is a result of the retailer's plans to reduce its annual store remodeling target from 300 stores in 2019-2020 to 150 to 200 stores starting in 2021.

"These projects transform the shopping environment, featuring end-to-end improvements in our decor, lighting and merchandise displays. In addition, they incorporate changes to optimize digital fulfillment, enabling speed and reliability for our guests and efficiency in support of our financial performance," Cornell said.

The retailer remodeled 84 stores in the second quarter of fiscal 2019 and will complete 300 remodels by the end of the year, executives said.