• Shares of Fossil rallied more than 80 percent in premarket trading Wednesday.
  • The company reported earnings and sales that topped analysts’ estimates on a surprise jump in demand for wearables.
  • Analysts still caution that the core watch business is troubled.

Shares of Fossil Group rallied more than 80 percent in premarket trading Wednesday, after the company reported earnings and sales that topped analysts’ estimates on a surprise jump in demand for wearables.

Same-store sales climbed 2 percent in the fourth quarter of fiscal 2017, Fossil said Tuesday, as the company rolled out new hybrid and display smartwatches across 14 different brands. E-commerce sales were up 31 percent during the period.

Sales of wearable devices nearly doubled last year to over $300 million, and the category now accounts for 14 percent of Fossil’s overall watch revenue. Similar to the Apple Watch and Fitbit’s devices, Fossil aims to sell more smart products that monitor heart rates and track steps.

“With wearable launches ahead of holiday, we significantly improved the trajectory for Michael Kors watches and drove a double digit increase in fourth quarter Armani watch sales,” CEO Kosta Kartsotis said in a statement.

“Our priorities are focused on delivering innovative wearable and traditional watch styles while improving performance in the handbag and jewelry categories and driving increases in digital sales,” Kartsotis added about initiatives in fiscal 2018.

Total sales globally fell 4 percent to $921 million during the fourth quarter. Analysts were expecting revenue of $890 million, according to a Thomson Reuters survey.

The company reported a net loss of $80 million, or $1.65 a share, compared with net income of $50 million, or $1.03 per share, a year ago. Excluding one-time items (a charge related to new tax legislation in the U.S.), Fossil earned 64 cents a share, while analysts were calling for 40 cents.

“The company finally was able to deliver some good news,” Wells Fargo analyst Ike Boruchow said in a note to clients, “with plans to recognize meaningful cost savings and significant [gross margin] expansion.”

However, he cautioned that the company is “seeing no stabilization of the traditional watch category,” which has always been at Fossil’s core. “We would still contend that the fundamental story here remains extremely challenged.”

As of Tuesday’s market close, Fossil shares have fallen more than 60 percent from a year ago.

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