Why Fossil Group Inc. Stock Skyrocketed Wednesday

What happened

Wednesday was a great day for watchmaker Fossil (NASDAQ: FOSL) shareholders, but a terrible day for anyone shorting the stock. Fossil stock soared as much as 82.5% on Wednesday following the company's better-than-expected fourth-quarter results. The stock is up about 70% at 1:35 p.m. EST.

Fossil reported fourth-quarter adjusted earnings per share of $0.64 on revenue of $921 million. Both metrics were well ahead of a consensus analyst estimates for adjusted earnings per share of $0.40 on revenue of $890 million.

A chart showing a stock price climbing higher

Image source: Getty Images.

So what

Notably, Fossil's net sales of $921 million and its adjusted earnings per share of $0.64 were both lower than figures in the year-ago quarter, of $959 million and $1.21, respectively. Though the quarter was better than expected, Fossil is still facing headwinds. But these headwinds were expected.

What may have took investors by surprise was the company's very strong growth in wearables during the holidays, which helped the company more than double its wearables revenue in 2017, to over $300 million, accounting for 14% of the year's total watch sales.

Fossil CEO Kosta Kartsotis commented on the quarter: "While sales and earnings were challenged as expected, we generated progress toward our objectives that include: driving growth in wearables across our portfolio of powerful brands, leveraging our scale to lower supply chain costs, increasing our digital capabilities, and continuing the transformation of our business through New World Fossil."

Now what

It's important for Fossil investors to keep in mind that the company is still facing major challenges in its core watch segment as demand continues to decline for traditional watches. Indeed, for Fossil's fourth quarter, watch sales declined across every geographic segment. And total watch revenue declined 6% year over year in constant currencies despite a jump in smartwatch revenue during the holidays.

For 2018, management expects total net sales to be between a decline of 14% and a decline of 6%.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool recommends Fossil Group. The Motley Fool has a disclosure policy.