Fossil's first Android Wear smartwatch, the Q Founder.
Courtesy Jason Cipriani for Fortune.
By Phil Wahba
February 14, 2018

Watch out, naysayers, Fossil Group (fosl) is staging a comeback.

The watchmaker’s shares surged as much as 79% on Wednesday after it reported much better-than-expected quarterly sales, buoyed by wearable technology, a market dominated by Apple (aapl), and strong e-commerce growth to the tune of a 31% jump. Fossil’s comparable sales rose 2% in its fourth quarter, well above the 6% drop Wall Street had been anticipating, according to Consensus Metrix. Indeed, the company said sales of wearable devices such as smartwatches had doubled in 2017 to $300 million, or 14% of total watch sales.

The incredible stock jump wasn’t only due to its financial performance. Many investors who had been betting against Fossil by selling its shares “short” had to buy up Fossil shares to cover their bet in a so-called short squeeze, compounding the impact of the strong results. According to Thomson Reuters, nearly 40% of Fossil shares had been sold short as of Jan. 31, making it the third-most shorted stock on the S&P 600 consumer discretionary index. There is also growing relief about the company’s debt levels following a refinancing at the start of the month.

In addition to its own products, Fossil manufactures watches for upscale brands such as Michael Kors (kors) and DKNY. The company intends to build on its wearables momentum. The focus on such products and on innovation “has us poised for stabilization and growth over time,” Fossil CEO Kosta Kartsotis said in a statement. “In the year ahead, we expect to be a smaller yet more profitable company that is on a solid path for the future.” Indeed, Fossil, which has previously announced store closings, also forecast a sales decline of 6% to 12% in the current quarter compared to a year earlier.

Total sales globally fell 4% to $921 million in the quarter, well above analyst forecasts for $890 million. Still there was room for caution among analysts. Wells Fargo analyst Ike Boruchow in a research note praised the company but also said there has been “no stabilization of the traditional watch category,” Fossil’s main business.

Nonetheless, Fossil shares are back to where they were about a year ago at $15.33 after precipitous drops in the last 12 months, but just a fraction of their $131.98 all-time highs only six years ago.

 

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