If you're new to Fossil (NASDAQ:FOSL) from an investing perspective and read about its record-setting performance recently, you probably think you've made an impressive discovery. The company set records with strong sales and earnings. But if you dig a little deeper, your excitement likely turns to disappointment.

For the fourth quarter, Fossil generated profits of $37.6 million, or $0.50 per share, up from $29 million, or $0.37 per share, a year ago. Sales were strong across all geographic regions, increasing 22.8% to $318.4 million. Gross profit margins were also up, growing by 290 basis points to 55.2% in the fourth quarter.

For the year, net income climbed 36.2% to $93.1 million, while earnings per share increased 34.3% to $1.25.

You think you've made a great discovery. You'll be famous. You'll be able to name this new species. But don't go calling the Smithsonian just yet. Let's dig a little deeper, shall we?

A closer look at the gross profit margins I mentioned above reveals that they were offset by increased operating expenses, which rose to 37.4% of net sales. The end result was an operating profit margin remaining unchanged at 17.9% of sales.

Fossil -- which actually has nothing to do with archaeological discoveries, but makes upscale watches, accessories and clothing -- also reported inventory growth of 41% for the quarter. However, the company said looking at inventory growth compared with sales growth over a two-year period would create a more accurate picture. Over that timeframe, sales increased by 45%, while inventories grew 47%. I'm not so sure I buy that analysis. The fact remains that in the most recent quarter, inventory growth outpaced sales growth 41% to 23%.

Looking ahead, the company expects higher advertising costs to limit earnings growth to $0.26 per share, compared with $0.22 per share for the first quarter of 2004. It predicts full-year earnings in a range of $1.53 to $1.57 per share. Picking the mid-point of $1.55 gives the company a reasonable forward P/E of 17.

There's a plethora of conflicting data in Fossil's latest earnings announcement. Impressive sales and earnings were offset by a predicted slowdown in both, along with higher inventories and expenses. A bit more digging is probably necessary to figure out what's been discovered. However, after yesterday's massive sell-off reduced the stock's price by nearly 11%, it's definitely worth excavating to determine what's been found.

Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of Fossil.