What happened

Shares of Fossil (NASDAQ:FOSL) have soared today, up by 12% as of 1 p.m. EST, after the company reported third-quarter earnings results. The accessory maker posted a surprise profit.

So what

Revenue in the third quarter came in at $609 million, which resulted in net income of $5 million, or $0.10 per share. While the market was looking for $616.2 million in sales, analysts expected Fossil to post a net loss of $0.19 per share. The bottom-line result includes the impact of $0.09 per share in restructuring charges. Fossil also took a hit of $0.01 per share related to foreign exchange headwinds.

Two Fossil smartwatches

Fossil is transitioning to smartwatches. Image source: Fossil.

While sales of traditional watches are falling, the company performed better than its own expectations, particularly on the profitability front.

Now what

CEO Kosta Kartsotis issued a statement regarding the quarter:

Our third quarter operating performance reflects the ongoing success of our current strategy during a transformational period for our category and for Fossil Group. We are highly focused on initiatives that improve our overall profitability and establish a foundation for sustainable growth. While the business continues to face topline headwinds stemming from declines in the traditional watch category combined with business exits and closings of underperforming stores, we are focused on narrowing the gap with gains in connected and digital sales. The third quarter marked progress toward our goals as we saw double digit growth in both our connected watches and our own e-commerce business. On a lower overall sales base we significantly improved profitability. We are pleased with the progress we are making and our plans for the holiday season, which is reflected in our increased outlook for the year.

In terms of guidance for the fourth quarter, sales are expected to decline year over year by 10% to 16%, with gross margin of 51.5% to 53.5%. Operating expenses should be $340 million to $360 million. Adjusted EBITDA should be $90 million to $115 million. Fossil expects to incur $8 million in restructuring charges in the fourth quarter.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.